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

KKR and RWE are major firms that need a UK state loan for their windfarms. This has sparked debate about whether the state loan was truly necessary. "This major investment in UK renewables is a vote of confidence for building in Britain," declared the prime minister. The two windfarms off the coast of Norfolk require almost £13bn of debt financing.

However, the project has been in development since RWE, the developer, was awarded a contract during the January renewables auction. The new development, which has garnered attention, involves the equity front where RWE sold a 50% share in the Vanguard schemes to KKR. The debt side, where £12.8bn has come from a consortium of 35 international banks, including the UK's national wealth fund (NWF) with a £1bn contribution.

The state-backed body is meant to direct capital to energy transition projects, but the question arises: would the windfarms have been built without the NWF's £1bn? RWE and KKR, both experienced in raising capital, might have managed the project without the NWF's involvement. The NWF's role is to ensure infrastructure is built that might not otherwise be, but its involvement in the Vanguard windfarms seems less critical given the established market for offshore wind generation.

With more scrutiny of the "additionality" principle, it might be better for the NWF to focus on other areas such as electrification, heat pumps, electric vehicles, and storage solutions.