Big, bigger, Gemini: one of the world’s largest offshore wind farms is taking shape 85 kilometers off the coast of the Netherlands. Starting in 2017, 150 wind turbines of the Siemens SWT-4.0-130 type, spread across 68 square kilometers, will supply electricity to around 785,000 households. The project’s price tag is as huge as its technical challenges: the Gemini consortium estimates construction costs at €2.8 billion. Heading the consortium is Canada’s Northland Power, which holds a 60 percent share, with the balance contributed by other investors, including Siemens.
The Future of Energy
Making Major Projects Possible
Major construction projects such as offshore wind farms and gas-fired power plants can easily eat up €1 billion or more. Siemens Financial Services makes its own capital available to enable projects of this magnitude to be realized.
It’s no coincidence that Siemens Financial Services (SFS) appears more and more frequently on investor lists. The reason is that many energy providers and banks do not have the resources to supply large amounts of capital on their own. That was the case with Gemini, where SFS contributed 20 percent of the project’s total equity investment and helped to attract the remaining investors.
In a similar project – the €1.3 billion Butendiek wind farm off Germany’s North Sea coast, which has been supplying electricity for about 370,000 households since 2015 – SFS has a 22.5 percent equity interest in the investment. “Gemini, Butendiek and a few other large-scale power generation projects were important strategic investments for SFS,” says Kirk Edelman, Global CEO of SFS Energy Finance.
Powerful Signal for Banks
Even if wind farms and power stations with Siemens technology continue to be built without support from SFS, a commitment from SFS is often the deciding factor. “When we get involved, that sends a powerful signal to the banks that we believe in the project,” says Robert Haight, Vice President for Energy Finance Equity in the Americas. SFS can become involved at different stages of a project. From the investors’ perspective, that often means as early as possible. SFS usually steps in during the development stage. It is understood – and is ultimately a part of the undertaking – that this will mean Siemens will supply the technology for a project.
Sometimes SFS needs to show its colors even earlier. One example is the Lordstown Energy Center, a new 940-megawatt combined-cycle gas turbine power plant being built in Lordstown, Ohio. The plant is expected to enter service in the summer of 2018. Siemens is supplying a turnkey power station with two H-class gas turbines, one steam turbine and three generators for its customer, Clean Energy Future. Lordstown is an “independent” power station project. In other words, the initiative for the project did not come from an energy utility company but from a project developer that plans the power station, looks for a suitable location, obtains the approvals and negotiates with the grid operators that will buy the plant’s electricity.
Long-term electricity supply contracts and a service agreement with expanded remote monitoring and diagnostic software guarantee the cash flow that will repay a major investment. So are there any risks? “Yes, certainly,” says SFS’s Edelman. “Sometimes projects that appear to be well structured turn out to be less successful and the value of our investment is impacted. Fortunately, these instances are rare and our investment track record has been strong.”
There are plenty of opportunities for SFS right now. Siemens is working with the Lordstown developers to plan two new power plant projects in the US. SFS is also involved in other parts of the world, for example in plants to convert imported liquefied natural gas to power in Chile and Malta and in new gas-fired power plants in the Middle East and Africa.
New Model for Energy Savings
Siemens Financial Services is also involved in energy savings performance contracting. This involves energy infrastructure upgrades to save energy which, in return, helps pay for upgrades using energy cost savings generated during a fixed period – a win-win arrangement and one that benefits the environment in particular. For example, SFS financed energy-saving measures at the Mercedes-Benz Superdome in New Orleans with a $7 million municipal lease. If guaranteed energy savings are not met in any year, future debt payments can be adjusted by the savings shortfall amount. This was the first financial project structure of its kind in the state of Louisiana. At the stadium, which has hosted seven NFL Super Bowl events in its 41-year history, Siemens Building Technologies installed state-of-the-art LED lighting, new cooling systems and building management software. The operator, the Louisiana Stadium and Exposition District, is expected to save an estimated $6.5 million in power and operating costs over ten years. The SFS financing models thus go beyond cost savings, making an important contribution to energy sustainability. “The upgrades we’re implementing will help the Superdome provide a greener, safer, and more comfortable experience for fans,” says Dave Hopping, President of Siemens Building Technologies in North America.