Why the World's Largest Sovereign Wealth Fund Is Investing In Offshore Wind

This week, Norway’s $1.3 trillion sovereign wealth fund – the world’s largest – acquired a 50% stake in a Dutch offshore wind farm. Here’s why this offshore wind investment is significant.

Offshore wind is becoming more competitive

If you are watching the energy industry, you may have noticed that this week Norges Bank Investment Management which manages Norway’s sovereign wealth fund acquired a 50% stake in the Dutch Borssele offshore wind farm off the coast of the Netherlands.

Borssele owned by Ørsted is the second-largest operating wind farm in the world and, perhaps more significantly, the fund’s first wind investment.

The wind farm has 94 Siemens 8 MW wind turbines (a total of 752 MW capacity), and produces enough energy to power one million Dutch households per year, a neat replacement of a big coal-based power plant.

The project is relatively new – it was fully commissioned at the end of last year.

So what should you make of this milestone investment in offshore wind?

We asked Olav Johan Botnen, the Nordics wind investment expert and Senior Analyst at Insight by Volue why the world's largest sovereign wealth fund is investing in offshore wind.

Low market risk offshore wind investment

“To be fair, the purchase of the 50% stake in the Dutch offshore wind farm by Norges Bank Investment Management is a financial deal with low market risk”, Olav Johan Botnen said.

A financial deal with low market risk

Olav Johan Botnen Senior Market Analyst, Insight by Volue
Offshore wind investment

“The wind farm has a guaranteed payment of 73.7 €/MWh over 15 years, starting from 2021. The power market exposure for Borssele effectively starts from 2036 onwards when subsidies end. At that point, the new owners will need power market competence to stay competitive.”

Offshore wind is becoming more competitive

The investment is a solid indication that offshore wind is moving into the mainstream, shedding its image of an expensive niche technology.

Since 2017, the price of investing in offshore wind has fallen and it has become much more competitive.

Milestones deals like this will speed up the green energy transition. And the good news is that this is only the beginning.

“The deal represents just over 10% of the fund’s renewable investment target. Norges Bank Investment Management has still a lot of investments to place in the coming years.”

Norges Bank Investment Management has still a lot of investments to place in the coming years

Olav Johan Botnen Senior Market Analyst, Insight by Volue
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Norges Bank Investment Management has said that the acquisition is in line with its strategy to build a high-quality portfolio of wind and solar power generation assets. Up until now, the fund had invested only in stocks, bonds and real estate.

However, it’s important to acknowledge that the more we welcome green energy, the more we are looking at increased volatility, complexity and the need for decision support for all energy players.

Olav Johan Botnen says that the need for decision support is present throughout the entire curve.

“They need support with long-term investments, mid-term hedging, and the short-term daily operations in power markets. We still have a lot of work to do there.”