A revolutionary tale
It is quite a heady lineup of players involved in the Revolution Wind saga in the US. At a sovereign level there is the US and Denmark. At the project level there is a whole host of characters – all stakeholders in the fallout.
First things first. Donald Trump said during the presidential election that renewables were to be cut back, particularly offshore. In office, his administration has allowed time for the onshore renewables market to adjust to the new reality.
Offshore, well, that's a different story. The message appears to be no new projects. Presidents cancelling projects is not new. Joe Biden hit the LNG sector in the run-up to the election, although he hit the pause button after earlier allowing projects to proceed.
Reports in the Spanish press last week opined on what Iberdrola could do to keep its New England Wind 1 and New England Wind 2 development projects alive. The reports seem to suggest it could keep its near US$18bn investment programme going and keep the US as its first overseas investment destination if its schemes were not cancelled. A Capital Markets Day with associated capex spending plans on September 24 could provide some clues as to how that is going.
The immediate concern, however, is on projects which have been financed and are under construction. Serious dollars. Equinor was the trailblazer in this regard with its Empire Wind scheme but its pain was short-lived. The storyline, in contrast to Revolution, was fairly straightforward. A construction stop order was enforced in mid-April and then revoked in mid-May, during which time the Norwegian state-backed company said it was losing US$50m a week.
However, relations between the US and Norway are said to be good. Equinor is a big investor in the US oil and gas energy market and the banks on the project financing were secured by commitments from Equinor to repay the debt if the project was cancelled.
Almost the reverse is true on Revolution, even though Equinor has a 10% stake in the developer, Danish state-backed Orsted. Relations between the US administration and Denmark are not good, primarily over the future of Greenland, a Danish territory but which Trump has said should be part of the US. In addition, the day the Revolution stop order was announced, the Danish foreign minister, Lars Lokke Rasmussen, was in California signing an agreement on the green economy with Trump rival, Democrat governor Gavin Newsom.
Orsted, 50.1% owned by the Danish state, is invested in the US but in the renewables sector. The company is not a major energy giant. Its scope to guarantee project loans is limited. Indeed, its financing model involves selling 50% stakes in its projects and allowing the equity partner to take a holdco loan on the scheme, not an opco loan. Orsted raises its funds via corporate bonds and equity.
And here's the thing. Guess who has 50% of Revolution, BlackRock's Global Infrastructure Partners and its Skyborn offshore wind unit. In a deal signed just before the presidential election the Larry Fink/Adebayo Ogunlesi entity put in place a US$1.7bn project financing including a US$1.07bn eight-year tax equity bridge loan with big tickets taken by Mizuho, BNP Paribas and MUFG. Citibank, Natixis, RBC, Bank of China, and Federation des caisses Desjardins du Quebec are the other banks on the deal. As the project is 80% built, it is fair to assume that the loan has been at least partially drawn down. But it will not be guaranteed a la Empire Wind.
So a lot more players are involved this time. A lot more. Perhaps given an American investor's involvement, a lawsuit has been filed pretty quickly as standard. But, in addition, the Rhode Island and Connecticut utility offtakers are suing too.
Is BlackRock the key to unlocking the impasse? It has been reported that Norway's finance minister Jens Stoltenberg was able to fight Equinor's corner as a former head of Nato and close Trump ally. BlackRock chief, New Yorker but Democrat Larry Fink was central to a deal involving US interests agreeing to buy Panama port projects from CKI, a deal mentioned by fellow New Yorker Trump in his State of the Union address. Fellow New Yorker and project finance veteran Ogunlesi was appointed in late 2016 to Trump's strategic and policy forum. So the three know each other ...
Indeed, it was reported by Bloomberg, shortly after Trump declared he would take back the Panama Canal, that Fink called his old Midtown neighbour and offered to end the crisis by purchasing the two ports to put them in American hands. So there may have been more calls of late.
For the uninformed it is anyone's guess what will happen next. Equinor said it would build some new pipelines in Pennsylvania. For Orsted the pain continues. It is losing US$15.7m a week from the stop order, so presumably is Skyborn. Orsted booked a US$570m impairment on the project last year. It could book a US$750m impairment if Revolution Wind and its other scheme, 100% owned Sunrise Wind, does not qualify for an additional 10% of ITC bonus credits.
