Centrica to invest £725 million to build 270MW offshore wind farm and also announces equity partner and refinancing of existing wind portfolio

Centrica plc, the parent company of British Gas, today announced that its 270 megawatt (MW) Lincs offshore wind project has received final investment approval, and that construction is expected to begin in 2010.

Lincs will be situated eight kilometres off the coast of Skegness next to Centrica’s existing wind farm developments at Lynn and Inner Dowsing and will comprise of 75 3.6MW Siemens turbines. Investment in this project is expected to total approximately £725 million and the wind farm should start generating power towards the end of 2012. When Lincs is completed, Centrica will have equity interests in operating renewable energy projects with an installed capacity of 650MW.

Under current UK Government proposals, Lincs will attract two Renewable Obligation Certificates (ROCs) for every megawatt hour (MWh) produced, following the UK Government’s decision in April to enhance the level of support provided for new offshore wind projects.

Centrica also announced that it has agreed the sale of a 50 per cent equity stake in its Lynn, Inner Dowsing and Glens of Foudland wind farms to the US-based investment management company TCW for a cash consideration of £84 million, and entered into agreements to raise approximately £340 million of non-recourse project finance facilities from a consortium of banks for these assets. The transactions value the wind farms at approximately £460 million in aggregate. Profit on disposal of this 50 per cent equity stake will be around £50 million. Reported operating profit in the year ended 31 December 2008 from these wind assets was £17 million, however, the Lynn and Inner Dowsing wind farms were not fully commissioned until December 2008.

Centrica is also entering into a joint venture agreement with TCW to govern their ongoing relationship as co-owners of the Lynn, Inner Dowsing and Glens of Foudland wind farms. The agreement contains customary rights for each party to acquire the other party’s shares in the joint venture company at fair market value following a material default by, or on the insolvency of, the other party.

Through its subsidiary British Gas Trading Ltd, Centrica will also enter into a 15-year Power Purchase Agreement (PPA) to off-take all the electricity production together with 50 per cent of the ROCs generated by the three refinanced wind farms.

Financial close on the non-recourse project finance facilities is expected to occur in November 2009 and the equity sale is expected to close before year end, conditional on receipt of European Community Merger Regulation (ECMR) approvals.

Sam Laidlaw, Chief Executive of Centrica, said: "Our decision to build Lincs illustrates our continued commitment to develop renewable generation and confirms our position as one of the UK leaders in green energy. The Government’s enhanced financial framework for offshore wind has been fundamental in improving the overall project economics of this development.

“The refinancing and equity sale of part of our existing wind portfolio underlines the quality of the operational assets and creates a structure for recycling Centrica’s capital and mobilising third party funds efficiently. This is a milestone in our renewables strategy and we look forward to working together with TCW who bring significant global expertise in energy investments.”

Notes to Editors

1. Lincs wind farm will be capable of generating electricity for around 200,000 British Gas customers. Centrica has also submitted planning consent applications for the Docking Shoal wind farm (540MW, submitted in December 2008) and the Race Bank wind farm (640MW, submitted in January 2009), both situated in the Greater Wash area.
2. Lincs has planning consent for 250MW with a proposed additional 20MW to be constructed in the footprint of the Lynn and Inner Dowsing wind farm development but connected to the Lincs transmission.
3. The wind farms included in the refinancing are currently wholly owned by Centrica: the Lynn and Inner Dowsing offshore wind farms (each with 97 MW installed capacity with combined maximum grid export capacity of 180 MW) and the Glens of Foudland onshore wind farm (26 MW). These wind farms are owned by Centrica’s subsidiary GLID Wind Farms Topco Ltd.
4. TCW is a subsidiary of Société Générale Asset Management, which has approximately $400 billion under management. TCW is making the investment in GLID Wind Farms Topco Ltd through two of the investment funds it manages: the US$2.6 billion TCW Energy Fund XIV and the €354 million TCW European Clean Energy Fund.
5. The following lenders form the consortium of banks providing debt finance to GLID Wind Farms Topco Ltd; Bank of Ireland, Bank of Tokyo-Mitsubishi UFJ, Bayern LB, BBVA, BNP Paribas Fortis, Calyon, Dexia, HSBC Bank plc, KfW IPEX Bank, Lloyds TSB Corporate Markets, National Australia Bank, NIBC Bank N.V., RaboBank, Santander
6. Lincs is expected to be a transitional project for OFTO purposes, which means that the offshore transmission assets for this project will be built by Centrica and their cost will be recovered post construction through an auction process. Centrica expects the costs related to these assets to amount to approximately £230 million, in addition to its own investment of approximately £725m in the wind farm itself. The Lynn and Inner Dowsing wind farms are not subject to the Offshore Transmission Owner (OFTO) regime.
7. Centrica was advised by Bank of Tokyo-Mitsubishi UFJ and Credit Suisse Securities (Europe) Limited in respect of the refinancing of the Lynn, Inner Dowsing and Glens of Foudland wind farms and the sale of an equity interest in GLID Wind Farms Topco Ltd. Slaughter & May provided legal advice to Centrica. Linklaters provided legal advice to the consortium of banks.