Greencoat UK Wind sees silver lining in Brexit

Stephen Lilley, a partner at the London-listed renewables outfit, believes rising power prices in the wake of the UK-EU split could benefit the onshore wind industry.

Rising power prices in the post-Brexit market could provide a boon to the UK onshore wind industry, according to Stephen Lilley, a partner at Greencoat UK Wind.

The listed subsidiary of UK asset manager Greencoat Capital announced on Wednesday it had purchased the 20MW Screggagh Wind Farm in County Tyrone, Northern Ireland, for £27 million ($36 million; €33 million). As the UK market adjusts following the referendum on the country’s EU membership, Lilley said power prices could increase, giving a boost to Greencoat’s new asset and the onshore wind industry.

“Given half of our revenue comes from power, and power is set by the gas price, which is dollar-denominated, the devaluation of the pound would mean our return in pound terms should go up,” Lilley said. “Therefore there is a potential benefit of devaluation following Brexit.”

For onshore wind, he explained, around 50 percent of revenue comes from the power price, and around 50 percent from green benefits. If the power price goes up 10 percent, revenue will go up by 5 percent. The offshore wind industry is move heavily subsidised, meaning more of its revenue comes from government support. Should power prices go up, Lilley said, offshore projects won’t benefit as much.

However, this didn’t necessarily weigh on Greencoat’s decision to go through with the deal, he explained. “We were happy to buy Screggagh just after the Brexit vote given the result should have little impact on the business.”

The company paid £20 million from its credit facility and £7 million from cash resources to purchase the project, which has been operational since May 2011 and receives one Renewable Obligation Certificate per MW/hour.

The deal didn’t take too much out of Greencoat’s credit facility, Lilley said, and it showed investors that the company will “carry on, business as usual straightaway”.

In a statement announcing its wind farm purchase, Greencoat said it “does not expect any material change to its business as a result of the UK exiting” the European Union.
Investors need not worry, Greencoat said, because its assets are inside the UK and sterling denominated, and they all benefit from the regulatory regime.

Greencoat’s most recent acquisition was in March, when it partnered with a UK pension to purchase a 49.9 percent stake in the 350MW Clyde wind farm for £355 million. A month later, the firm announced it would issue 300 million shares to help pay down debt before a new round of investing.