Centrica Receives Final Investment Approval For Its 270 MW Lincs Offshore Wind Project, UK

Published: 28-Oct-2009

Centrica plc (Centrica) has received final investment approval for its 270 MW Lincs offshore wind project and the construction is expected to begin in 2010. Lincs will be situated eight kilometres off the coast of Skegness next to the company's existing wind farm developments at Lynn and Inner Dowsing, UK, and will comprise of 75 3.6 MW Siemens AG's turbines. The investment in this project is expected to total around GBP725 million.

The wind farm should start generating power towards the end of 2012.

When Lincs is completed, Centrica will have equity interests in operating renewable energy projects with an installed capacity of 650MW.

Under current UK Government proposals, Lincs will attract two Renewable Obligation Certificates (ROCs) for every megawatt hour (MWh) produced, following the UK Government’s decision in April to enhance the level of support provided for new offshore wind projects.

Sam Laidlaw, chief executive of Centrica, said: "Our decision to build Lincs illustrates our continued commitment to develop renewable generation and confirms our position as one of the UK leaders in green energy. The Government’s enhanced financial framework for offshore wind has been fundamental in improving the overall project economics of this development.

Centrica also announced that it has agreed the sale of a 50% equity stake in its Lynn, Inner Dowsing and Glens of Foudland wind farms to the US-based investment management company TCW for a cash consideration of GBP84 million, and entered into agreements to raise around GBP340 million of non-recourse project finance facilities from a consortium of banks for these assets. The transactions value the wind farms at around GBP460 million in aggregate. Profit on disposal of this 50% equity stake will be around GBP50 million. Reported operating profit in the year ended 31 December 2008 from these wind assets was GBP17 million, however, the Lynn and Inner Dowsing wind farms were not fully commissioned until December 2008.

Centrica is also entering into a joint venture agreement with TCW to govern their ongoing relationship as co-owners of the Lynn, Inner Dowsing and Glens of Foudland wind farms. The agreement contains customary rights for each party to acquire the other party’s shares in the joint venture company at fair market value following a material default by, or on the insolvency of, the other party.

Through its subsidiary British Gas Trading Ltd, Centrica will also enter into a 15-year Power Purchase Agreement (PPA) to off-take all the electricity production together with 50% of the ROCs generated by the three refinanced wind farms.

Financial close on the non-recourse project finance facilities is expected to occur in November 2009 and the equity sale is expected to close before year end, conditional on receipt of European Community Merger Regulation (ECMR) approvals.

Sam Laidlaw, chief executive of Centrica, said: "Our decision to build Lincs illustrates our continued commitment to develop renewable generation and confirms our position as one of the UK leaders in green energy. The Government’s enhanced financial framework for offshore wind has been fundamental in improving the overall project economics of this development.

“The refinancing and equity sale of part of our existing wind portfolio underlines the quality of the operational assets and creates a structure for recycling Centrica’s capital and mobilising third party funds efficiently. This is a milestone in our renewables strategy and we look forward to working together with TCW who bring significant global expertise in energy investments.”

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