PensionDanmark takes hit on offshore wind site

Falling power prices following the end of a fixed-price contract have led to a write down of about $16m.

One of Denmark’s largest pension funds has written down about DKr100 million ($15.8 million; €13.4 million) from an investment in a 166MW offshore wind farm.

PensionDanmark originally invested about DKr700 million in the Nysted project off the coast of Denmark in 2010, making it the largest shareholder with a 50 percent stake. The remainder is held by Dong Energy (42.75 percent) and Stadtwerke Lübeck (7.25 percent).

The write-down of the project, commissioned in 2003, came following the end of its subsidy contract and its entrance into the merchant power market amid unexpected lower electricity costs. PensionDanmark recorded a DKr 95 million operating loss for Nysted in its 2016 annual report.

“This [write down] is due to the fact that the period at which power generation from the park can be sold at a fixed guaranteed settlement price, as expected, expired in 2016,” Claus Stampe, the pension fund’s chief investment officer, told Danish publication Inside Business. “As electricity prices have fallen, expectations of the park’s future earnings are therefore reduced, which has led to a write-down of the park’s estimated market value, which has particularly affected the 2016 result.”

Stampe declined to add further comment when contacted by Infrastructure Investor.

A number of renewable energy projects across the continent could face similar difficulties to Nysted in the coming years as they become exposed to the wholesale market price, despite some forecasters pointing to higher power prices in the long-term. To read more about this, read our latest analysis: Are renewables really low risk?

The Danish Financial Supervisory Authority expressed its worries about the country’s pension funds investing in alternatives earlier this year, stating its concerns “about the general level of the necessary skills in the pension funds in relation to due diligence, risk management and ongoing management of the investment”.

As at the end of last year, PensionDanmark had an infrastructure portfolio of DKr20.4 billion, accounting for about 11 percent of its allocation.