Baltica III: A delay to Poland’s fledgling offshore wind sector
Poland’s offshore wind sector is in the embryonic stage of project finance with no deal precedents to provide a viable financial template for future such deals. And now, the 1GW Baltica III wind project has been delayed with financial close due next year.
Sponsors of the 1GW pathfinder Baltica III offshore wind farm in Poland – PGE and Orsted – are expected to reach financial close on the DFI-backed funds backing the scheme next year. The deal was originally scheduled to close by the end of 2023, followed by construction in 2024, but has since been delayed amid problems around drumming up equity and lender commitments.
PGE is working to partially debt finance its commitment with hopes that lenders will account for some 70%, while Orsted will equity finance its half of costs. The project is the first publicly procured, commercial scale offshore wind farm in Poland with estimated construction costs coming in at €3.3 billion ($3.25 billion), a figure which is likely to be adjusted closer to FID to account for supply chain issues and inflation. Along with equity and commercial debt contributions, the EIB has approved a €700 million loan, which is part of a larger €1.4 billion package to be potentially set aside for Baltica III and its sister project Baltica II.
Development rights for both projects were awarded to the duo in the first Polish offshore wind auction after Baltica II and III were progressed by PGE and bought into by Orsted in 2021. The sponsors decided to move forward with Baltica III ahead of II. Baltica II was previously scheduled to reach FID and subsequently financial close in 2024, but it is not yet clear if the delay to Baltica III has any bearing on this timeline.
The projects were awarded CfD contracts with a PLN319.60/MWh ($82.82/MWh) strike price in April 2021 based on development plans at that time. Advisers to sponsors: Societe Generale (financial) and Norton Rose Fulbright – legal to PGE (debt advisory).
One other Polish offshore wind project is due to close this year though – Baltic Power’s 1.14GW offshore wind farm – with backing from the EBRD alongside heavy ECA support from Danish ECA, EFIA, Germany’s Euler Hermes, and Canada’s EDC. In short, the emergence of ECA backing on Baltica III will help push the deal over the financial line.