Wind energy is one of the major keys to revolutionising our energy system and ending our reliance on dirty, expensive fossil fuels.
To play a part in crafting a green future, our generation arm, Octopus Energy Generation, are investing hard to build more wind farms as quickly and affordably as possible.
James is one of the Investment managers in their fund management team and I sat down with him to find out all about wind power, building wind farms and how we are evolving to make the transition to wind energy faster.
How to Build a Wind Turbine
Before the work begins there are consultations with stakeholders, airports, local community groups, the grid, transport and the police to ensure there are no hiccups further down the line.
Once the project is approved and construction has started, you focus on your road infrastructure and pouring concrete for the foundations, setting up hard stands where the turbine will lay disassembled and crane will be positioned to lift components into place.
Then it’s onto the electric aspect where engineers will lay the cables and construct a substation to connect the site to the local grid network. Typically we will have a turbine supply agreement with a turbine manufacturer (they can cost anywhere between 1-4 million pounds depending on the size).
Once you’ve got a contract in place, the turbine supplier will begin securing steel and other commodities and manufacturing the tower sections, blades and nacelle (the part of the wind turbine that houses all the generating components) for each turbine. This can take another 9-12 months from order to delivery.
Once all the equipment is secured, you organise a construction crew, on site facilities, and equipment so you can start building.
The first step in the building process is landscaping by digging roads or tracks where you need to across the site. Then you pour the foundations whilst the electricians ensure the cable routes and transformers are connected to the National Grid or the distribution network.
From there, you deliver and construct the turbine, starting with the tower and ending with the blades.
The final stage involves testing and commissioning to ensure everything is working as it should and the frequency and the export of power through the grid connection is working correctly.
Samsam: How long can one of your development projects take from conception to completion?
James: The process from first conversation to actually reaching the commissioning of a wind farm can vary massively.
For our acquisition deals, the first step is to go out and talk to people and find opportunities, putting together proposals to acquire or invest in an asset or business. Then we do our due diligence and put a competitive bit in so negotiations can start.
In a straightforward transaction, it may take 3 to 4 months and in more complicated deals it can easily take many more months or even years.
On average, it takes 5.4 years from planning submission to commissioning an onshore wind farm in the UK.
Our wind farm in Berceronne, France
Samsam: What can we do to speed up this process?
James: That’s exactly what we’re looking at with the Senior Team. There is a possibility to make reforms to planning policies on a regional level to speed things up. Another thing we are exploring is to open source some of the information collated from the countless environmental studies done in areas. At the moment, there is a time limit on the validity of those surveys but it would make sense for developers to have open access to historical information. We also want to centralise or reform network operators to allow a more streamlined and transparent process to developers.
Samsam: Could you tell me more about the process of financing a wind farm?
James: So, if you’re starting from absolute scratch with your developer you will need to find and sign up a suitable piece of land. Then we will prepare an environmental impact assessment to study the suitability of the area, which can take a long time as they are quite intricate studies. All in all, the development process can cost around half a million depending on the size of the project.
For example, last year we acquired a 50 megawatt wind farm, which was between 1 million and 1.5 million per megawatt, including construction costs and a developer fee. So you’re looking at an overall cost of a £60-75 million investment to get from a company that has the right to build a project to a fully operational wind farm that will then generate electricity for 30 or 40 years.
In terms of the rate of return on investment, it can be 7.5 to 8% at the ready to build stage. If you’re buying it operational, it’s going to be much lower. On average, it takes approximately 10 years after a turbine is operational, to pay back the cost of building it.
It may seem expensive but wind power is much cheaper than fossil fuels and costs roughly 25% less than even the cheapest coal-fired option.
Rodene Wind Farm in Sweden
Samsam: How much money is at your disposal to make these sorts of investments?
James: We’ve got several different investment funds with money to deploy, predominantly from institutional investors like pension funds. At the moment, our main renewables funds have around £4billion of existing assets and hundreds of millions of pounds currently available to invest in new projects.
This includes many regular people contributing small amounts of savings from their pensions because they care about their planet and believe in what we are doing.
James: All in all, this gives us huge firepower to go and invest in developers and in early stage pipelines, which is super, super exciting. We invested a billion pounds in the last 12 months and the wider investment team has a target of between one and 2 billion every year which is a massive increase on what we did in the last few years so we will be able to make a huge global impact.
We’re looking to invest another billion pounds in development projects within the next 12- 18 months.
As James is one of the investment managers in our development team he spends his days finding or originating new opportunities to invest in either wind farms, solar sites, or more innovative development platforms across Europe, the US and Australia.
I spent some time getting to know James a little better to discover what led him to Octopus and what sets Octopus Energy Generation apart from the rest.
Can you tell me a little about your career background?
James: Sure, my renewables career started with an internship in wind farm development in 2014. I worked at a pretty small boutique, onshore wind farm developer in London dealing with small wind farms between 5 to 25 megawatt sites across the UK.
I moved into a development manager role and then as our company evolved I was able to move to the acquisition investment side of things and within a year or two I moved over to Octopus to continue working in this field, on a larger scale.
Samsam: What did you study to get into this field?
James: I studied business economics originally, which is a little unusual in our field. Whilst I didn’t go to University planning to work in sustainability, I really found myself drawn to my modules in climate change and sustainable business so my career journey has been really organic. Once I joined the workforce I knew that a career in sustainability was in my future.
Samsam: Can you tell me a little bit more about some of the assets that you’re dealing with?
James: I work with a ton of different assets. For example, newly built or ready to build wind farms. We also look more broadly at innovative investments such as hydro energy projects and new, emerging technologies rather than just solar and wind.
The wider investment team is also looking at things like storage, electric vehicle infrastructure and carbon capture. Ultimately, our investments will extend into vertical farming as well as sustainable, efficient agricultural projects.
We have a broad remit across the energy transition space to help usher in the green future.
Samsam: How are you doing things differently at Octopus Energy Generation?
James: What makes our business model unique is that Octopus has both generation and supply under one roof. This means we are building and investing in renewable energy sources and it is also possible to deliver this power directly to our Octopus customers.
Another thing that sets us apart is that we are currently looking for developers to partner with or invest in. Joining a project at the beginning of the developing cycle means more risk but also better returns. This will allow us to grow as a business by getting exclusive rights for a large ongoing return of investments for upwards of 40 years.
We get to cover the width and breadth of the energy industry in what is essentially a one-of-a kind business.
Our Grange Wind Farm in Hull
Samsam: Boris Johnson has said he wants to make the UK, the Saudi Arabia of wind. How feasible do you think that is?
James: I believe he was referring to offshore wind there and the UK has got one of, if not the best wind resources in the world. Especially with some of the super innovative tech that is being developed which includes amazing things like floating offshore wind turbine structures. These will allow us to build wind turbines deeper and deeper into the ocean, allowing us to access more energy and utilise more of the UK’s wind resources.
We were one of the first investment managers to invest in developing floating offshore wind, so I believe we have a great opportunity with our development partner to become a world leader in this market.
An innovative floating offshore wind farm
Samsam: Has the pandemic negatively impacted your investment or the renewables market at all?
James: Interestingly, it’s almost the opposite. The renewables market became wildly popular during the pandemic, as the climate change agenda seemed to garner increased public awareness. The investments are also becoming much more secure and lower risk so we expect to see continued investment and growth. Not to mention, we are benefitting from CfD’s (a way the government encourages renewable generation by guaranteeing developers a fixed price for the green power generated). Mechanisms like these incentivize more wind turbines to be built, making energy cheaper, lowering bills for people and bringing jobs to the local communities.
The way that these work is that the government sets the price wind turbine operators get paid per mwh and if the wholesale price is lower, suppliers have to pay the difference. Currently, the wholesale price is way higher so turbines are paying back millions, possibly billions to the public/suppliers this year.
Wind power is an exceptionally secure investment, and generating renewable energy is cheaper than ever.
Final question, why is it so crucial and so important that we invest in the global wind industry, at this moment in time?
James: There is an enormous opportunity across the wider world to transition to sustainable energy generation with wind being one of the lowest cost to produce. These technologies are bursting with potential, and the more we invest the better our chances to end our reliance on dirty generation that is destroying our planet.
Feels like we are in the right place, at the right time.
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