UAE takes big stakes in struggling UK offshore wind market

Unlock the Editor’s Digest for free

The United Arab Emirates is set to take a large minority stake in a second UK offshore wind farm in the space of a week, as the Gulf state seeks to capitalise on difficult conditions in the industry to expand in Britain.

The proposed investment in the new East Anglia Three offshore wind farm, which state-backed renewables company Masdar intends to finalise in the first quarter, is among a string of deals that oil-reliant UAE has signed at the COP28 climate conference, as it seeks to boost its green credentials.

The proposed investment also comes amid scrutiny of Emirati investment in other UK assets, including its part in an attempt to purchase the Telegraph Media Group.

Masdar, which is chaired by COP28 president Sultan al-Jaber, hopes to buy up to a 49 per cent stake in the 1.4 gigawatt wind farm under construction off the Norfolk coast — set to be one of the UK’s largest — from Spanish energy company Iberdrola.

The decision to back the project, due to start producing power in 2026, shows that the UAE is prepared to invest in projects that many developers believe have become uneconomical after government contracts locked in low prices for the electricity they produce.

The sector has run into trouble as spiralling costs have cast doubt over the viability of projects awarded at relatively low prices under the UK’s contracts-for-difference scheme. Some developers are now seeking additional government support to continue with the projects.

East Anglia Three has a strike price of £37.35 per megawatt hour, the guaranteed maximum price the government pays operators for the electricity they generate, though it is further advanced than many other projects with construction expected to start next spring.

Last month, the government increased the maximum strike price for its next offshore wind auction to £73 per megawatt hour to reflect more challenging conditions in the sector.

Husain Al Meer, Masdar’s director of global offshore wind and UK, told the Financial Times that the “market has been going through a tough time” but that this represented an opportunity for the state-backed company to deploy “dry powder”. “We have a lot of capital to deploy, but we are very selective”, he said.

Asked about criticism of Emirati investment in the UK, including the Telegraph deal, he said: “We enjoy a very strong relationship with the UK. We’ve been investing in the UK for a long time; this is part of our commitment to the UK that we will keep investing in infrastructure and the energy transition.”

The proposed deal follows the launch by the UAE of a $30bn climate-related investment fund with BlackRock, TPG and Brookfield.

Analysis by the Financial Times last week found that UAE state companies and funds could be linked to almost $200bn in global investments in the year leading up to the COP summit, mostly in green energy.

Utility companies often sell stakes in their facilities after the initial development stage but Masdar’s recent large investments show it is taking an active role in the development of wind farms.

Last week, it bought a 49 per cent stake from German utility RWE in the UK’s £11bn Dogger Bank South project. It also agreed in July to acquire a 49 per cent stake in an Iberdrola 476MW offshore wind farm in the Baltic Sea, worth €1.6bn.

“When we take 49 per cent, it’s a clear signal that Masdar is becoming a developer, we’re going to share development risk and deploy people alongside Iberdrola and co-develop the projects,” said Al Meer. “We’d like to go to 50 . . . or even take 100 per cent of projects.”

“They have been buying other assets elsewhere but they’re definitely keen on the UK,” said Deepa Venkateswaran, an analyst at Bernstein. “Maybe because of the COP presidency, there’s more willingness on the part of the UAE to push more money in now.”

The Iberdrola agreements form part of up to €15bn in funding that Masdar and the Spanish group have agreed to mobilise at COP to back renewable energy projects.

“By combining our renewables experience and financial strength with those of Masdar, we can deliver more secure, competitive and clean energy quicker,” said Ignacio Galán, Iberdrola’s executive chair.

Additional reporting by David Sheppard in London