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UK government report criticises pension fund ‘oligopoly’ in wind farms
Credit: Author: Shayla Walmsley Investment & Pensions Europe | 15 January 2013 | www.ipe.com ~~
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A UK government committee has demanded “a new model” for wind-farm contracts, claiming the current licensing system allows bidders and their pension fund backers to form an “oligopoly” paid for by consumers.
In a move that could result in drastic restrictions on investor contracts for offshore electricity generation, the parliamentary public accounts committee demanded some form of profit redistribution that could significantly curtail projected returns of £17bn (€20.4bn).
Although it acknowledged that no public funds were directly involved in the licensing regime, the committee’s report criticised contract terms that include 20 years’ guaranteed income with – in contrast to PFI projects – no construction risk.
Among its proposals is a shift to shorter contracts, and the requirement that investors share gains secured from debt refinancing and “excess equity profits”.
The committee attacked Treasury claims that the existing licensing regime had opened the market, arguing that two operators had effectively become an “oligopoly”.
It warned of yet more potential for monopolistic behaviour as initial bidders sold assets on to pension funds.
In the run-up to the report, industry regulator chief executive Alistair Buchanan was forced to defend the link to RPI as appealing to two “high-quality, blue-chip” pension fund investors currently bidding for licenses.
BT Pension Scheme and USS are both providing finance to bidding consortia.
Committee chair and former minister Margaret Hodge said: “A pension fund would be daft not to try to get hold of one of these licences. Absolutely daft. This is the most secure, risk-free investment I have seen in a long, long time.”
Expert witness Chris Veal, director of Transmission Capital, denied claims during often hostile questioning that pension fund investors had become “very, very rich” by investing in infrastructure vehicles that shunted risks onto the public sector before pulling out.
Veal – whose investment firm won four offshore licences as part of a joint venture – pointed to relatively low-cost capital with the advantage of longevity.
“The investors in these assets have never sold an asset,” he said. “They don’t intend to sell the assets. They are long-term investors.”
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