KKR and RWE are rich firms. Why do they need a UK state loan for their windfarms? | Nils Pratley

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National wealth fund is to lend £1bn towards the Vanguard projects – but whether the private equity giant needed help is debatable“This major investment in UK renewables is a vote…

National wealth fund is to lend £1bn towards the Vanguard projects – but whether the private equity giant needed help is debatable

“This major investment in UK renewables is a vote of confidence for building in Britain,” declared the prime minister.

Andy Burnham is obviously correct that the two Vanguard windfarms off the coast of Norfolk are huge investments. Together, they require almost £13bn of debt financing. But he can’t claim they represent a fresh expression of confidence. The project has been on the runway since the German utility RWE, the developer, was awarded a contract to build the windfarms in January’s renewables auction.

Instead, the new news on Wednesday was how the project will be financed, which is where the story becomes interesting. On the equity front, RWE said it had sold a 50% share in the Vanguard schemes to KKR, the giant US private equity and infrastructure investor. On the debt side, £12.8bn has come from “a consortium of 35 international banks”, including £1bn from the UK’s own national wealth fund (NWF).

It is fair enough, one might say, for the NWF to get involved – directing capital to energy transition projects is, in part, what it was set up to do. But here’s another key aspect of its role: the state-backed body is not meant to be a substitute for private capital; instead, its funding is supposed to be “additional”, in the terminology, to ensure infrastructure is built that might not otherwise be.

Here is how the NWF describes the process: “For each investment we are considering, we test and assess the extent to which impact would not have materialised without us, so we are confident we are delivering financial and non-financial value that would not otherwise be achieved.”

So how does that work with the Vanguard windfarms? Would they have been scrapped if the NWF had not chipped in its £1bn? That seems highly unlikely.

Consider that RWE is one of Europe’s biggest electricity generators and that KKR is a giant among private equity houses.

If…

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