Offshore Wind Power is an Electric Investment Opportunity

Construction has begun in earnest on a national network of more than 2,100 offshore wind turbine rigs that will need to be installed in US coastal waters by 2030 to meet the national goal of 30 GW of offshore wind power.  

In February, the US Department of the Interior awarded leases to six companies planning to build offshore wind farms on an area totaling 488,000 acres in the New York Bight waters off the coast of New Jersey and the southern shore of Long Island. The federal auction of the coastal sites yielded $4.37 billion from the winning bids.

DOI is planning auctions to award leases for offshore sites in the Carolinas in May; it will award leases for sites off the coast of California in November.

The New Jersey Department of Economic development estimates that offshore wind power development will bring $150 billion in private investment to NJ during the next 15 years.

The largest offshore wind manufacturing facility in the US is under construction in Gloucester County; the $250 million plant will produce 400-foot long, 2,500-ton monopile towers used to anchor offshore turbines to the ocean floor. The New Jersey Wind Port, a first-of-its-kind, $400-million staging area for the assembly of offshore wind turbines, is being built in Salem County.

One REIT that has positioned itself to capitalize on the emerging bonanza of US offshore wind farm development isn’t planning to build, buy or rent any assets.

Hannon Armstrong Sustainable Infrastructure Capital, a REIT that provides capital to companies involved in energy efficiency, renewable energy and other sustainable infrastructure markets, describes itself as the first US public company solely focused on climate solution investments.

With only about 14 percent of its top line derived from rental income and 50 percent tied to interest payments, Hannon Armstrong could be categorized as a mortgage REIT as well as an infrastructure REIT.

Regardless of category, Hannon Armstrong’s approach to funding renewable energy projects has positioned the REIT to tap into a wave of growth from the emerging bonanza of offshore wind farms under development.

Hannon Armstrong usually doesn’t buy or build the infrastructure itself, which in wind energy projects include turbines, monopile towers, miles of underwater cables and smart grids. It provides loans (or similar investments, like preferred stock) to a project based on the reliability of long-term contracts for the power that the wind farm will generate.

According to analysts, the record value of the offshore leases during the February auction was the result of a bidding war between major players that has driven up the price of these new assets.

Developers bidding for offshore sites are committing to long-term contracts with utilities to distribute the power produced by offshore wind farms. Hannon Armstrong evaluates its risk based on the strength of these long-term power contracts.

According to its 2021 annual report, nearly half of Hannon Armstrong’s investments are focused on the market for “Behind-the-Meter” (BTM) distributed building or facility projects which reduce energy usage using solar energy and energy storage efficiency improvements.

About 37 percent of its portfolio is in Grid-Connected projects that deploy solar or wind to generate power where the off-taker is part of the wholesale electric power grid. The balance of Hannon Armstrong’s investments target Sustainable Infrastructure, including updated transmission, water and storm water infrastructure.

Hannon Armstrong says it increased revenue by 14 percent last year. The company is projecting that distributed earnings per share on its climate solution investments will grow at a compound annual rate of more than 10 percent through 2024.