INTERVIEW - Delving into retail's offshore wind investment drive

Retail giants such as IKEA, H&M, Bestseller and ASKO last year acquired direct equity stakes in offshore wind projects. Esgian's top 10 predictions for offshore wind anticipate a further acceleration of this trend in 2024. To discuss the factors behind these stake acquisitions, Renewables Now recently had the opportunity to speak with Oliver Stephenson at Esgian.

The trend observed by Esgian raises many questions: Will this spread to other sectors or is this something that is quite limited to retail? Are there other companies that this might be applicable to in the retail sector? Why is a direct stake purchase more attractive than a PPA?

“There is not a huge amount of data here. So we are sort of looking at very much of a developing situation,” Oliver said.

“One way of looking at it is that an offshore wind PPA is generally struck for quite a large volume. And if you go in for a direct equity stake, it might be quite small. So potentially it gives you that exposure of a smaller position. So that's one possibility, but I can contradict that immediately by saying look at Ikea,” Oliver said.

For most of the direct stake purchases in 2023, the exact share was not made public. But then there is Ikea or, to be more specific, Ingka Group – the largest IKEA retailer – which is going in with 50% stakes in offshore wind. And not just one or two projects, but many. Of course, Ikea has been dipping its toes in renewables and putting the focus on sustainability much earlier than most other retailers so its significant involvement in offshore wind seems like a logical next step.

“Another reason why it is compelling for a retail company to do it is because it gives you direct exposure. If you are a consumer-facing company having a direct exposure may be viewed very well by your audience. You are likely to have quite strong targets for Net Zero and direct action is much more visible and easy for your consumer base to understand than trying to explain what a PPA is. The company can say “see, we're directly investing in renewables.”

One particular project Oliver and Esgian are looking at is in Bangladesh, which at present has no offshore wind. At COP28 in December, fashion brands Bestseller and H&M Group pledged to invest in a 500-MW nearshore scheme being developed by Copenhagen Infrastructure Partners (CIP) together with local partner Summit Power.

The project, which is in early-stage development with operations potentially starting in 2028, could significantly increase the availability of renewable energy in Bangladesh, a key manufacturing country for the fashion industry, non-profit organisation Global Fashion Agenda (GFA) said.

“By pledging to invest significantly in the offshore wind park in Bangladesh, we can support the availability of renewable energy in one of our key manufacturing countries and aim to reduce climate emissions from our supply chain,” Anders Holch Povlsen, Bestseller chief executive and owner, said in December. The Danish brand said on LinkedIn that it is committing to invest USD 100 million in the project.

“Having this sort of support from a big employer in a country like Bangladesh directly or indirectly can potentially help push through offshore wind projects quite quickly. It can help support the process of getting government approvals and permitting,” Oliver commented. He also believes something like this could happen in Vietnam

“From the point of view of a developer in a new market it too makes perfect sense. Why not have someone who's been working in those countries for maybe twenty, thirty or more years and knows how things work to support you? The understanding that they have of that market could be as valuable as the investment.”

Additionally, as Esgian pointed out in their offshore wind predictions, such equity partners provide the opportunity for traditional offshore wind developers to financially de-risk their project portfolios while still retaining control of the projects.

For now Esgian has identified direct stake acquisitions by retails firms in offshore wind assets in Southeast Asia and Europe, especially in the Nordics. What is interesting is that these investments are mainly made by Scandinavian companies.

“I guess that is part of their DNA,” Oliver says. “Now that sustainability is inherent in everything that they are doing, taking an offshore wind stake sounds natural. But you could also argue that they are being forced to do it by the consumers’ expectations.”

When asked about the long-term benefits of having a stake rather than a PPA, he suggested that it is more accurate to discuss the long-term effects, since such investments could have both a positive and a negative side.

“With a direct investment in a power asset you become more entrenched in the particular country. So your position in that country gets deeper which can be positive or negative. You are usually going to be in it for longer than the PPA because a PPA is not going to be struck for the full lifetime.

“Meanwhile, you have exposure to issues in the construction phase so if there are delays and cost overruns, you are gonna be liable for that. This is not the case when you have a PPA – delays and issues are someone else's problem. There is a reasonable amount of risk.

“You are also exposed to power prices which may be a good thing because you can hedge on those power prices too once you've got direct ownership.”

By deepening their involvement in offshore wind assets, companies not only address decarbonisation challenges within their supply chain but also position themselves as integral players in shaping the energy landscape of the regions they operate in.

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