In the eighth of a series of real asset investment case studies, Matteo Quatraro, Director and Head of Portfolio at Gravis Capital Management, examines an offshore wind investment.

The offshore wind sector is critical to the UK's Net-Zero ambitions and its goal of achieving full decarbonisation and independence from gas supply. The ambitious target set for 2050 cannot be reached without clear policies to boost and support offshore wind, particularly by taking advantage of the excellent wind conditions in the North Sea. Although the Scottish Government recently approved one of the world's largest offshore wind farms, much work remains to be done—especially in addressing the misinformation often associated with this renewable sector.

Recent technological advances have delivered significant efficiency improvements, reflected in much higher capacity factors (the proportion of time a turbine produces electricity at full output). This is particularly evident in areas like the North Sea, where strong and consistent wind speeds mean that UK offshore turbines achieve an average capacity factor of just over 40%, compared to around 26% for onshore wind farms.

The UK currently has approximately 16 GW of operational offshore wind capacity. The Government aims to generate 43-50 GW of power from offshore wind by 2030, and potentially up to 125 GW by 2050. Achieving these targets will require clear, long-term actions to support the sector.

In 2018, Gravis, acting as investment adviser to GCP Infrastructure Investments Limited ("GCP"), recommended that the investment company acquire a minority stake in Race Bank, an existing 573 MW offshore wind asset located in the North Sea, approximately 27 km off the coast of north Norfolk.

From acquisition until divestment in 2021, Gravis contributed to the decision-making and management of the asset alongside the other shareholders: Orsted, Macquarie, Sumitomo and Arjun.

Offshore wind has been one of the fastest-growing renewable sectors in the UK over the past decade, alongside solar and onshore wind. The UK now has the largest offshore wind capacity in Europe—ahead of Germany and the Netherlands—and is second only to China globally.

The UK's dominance stems from its geographic advantages: shallow seas and strong winds combine to create ideal locations for offshore wind development. This attractiveness has fostered a substantial supply chain to support the construction and maintenance of wind turbine generators and associated infrastructure.

Given the sector's potential, entering it was a strategic move. Race Bank offered particular advantages: the asset benefits from both a Power Purchase Agreement (PPA) for electricity sales and Renewable Obligation Certificates (ROCs), a government subsidy for eligible renewable assets. Race Bank is accredited under the UK Renewables Obligation scheme, receiving 1.8 ROCs per megawatt-hour (MWh).

As a minority shareholder in Race Bank, we participated in the OFTO disposal phase and were involved in the final stages of the asset transfer.

OFTO ("Offshore Transmission Owner") is a UK regulatory regime whereby, after an offshore wind farm is constructed, the transmission assets (substations and undersea cables) are sold through a competitive tender to the winning bidder. This arrangement reduces the financial burden on developers, who no longer need to own and manage expensive transmission infrastructure. It also mitigates the risk of conflicts of interest between distribution and transmission owners.

The OFTO receives an inflation-linked, secured revenue stream for up to 25 years. In return, they must provide Operations & Maintenance (O&M) services to guarantee a certain level of availability.

The competitive nature of the OFTO regime helps drive down the Tender Revenue Stream—the regulated income an OFTO receives—resulting in lower costs for consumers. Given the UK's Net-Zero targets, an efficient and competitive OFTO process is essential for the timely delivery of transmission infrastructure, enabling new offshore wind farms to connect to the grid and supporting the country's decarbonisation goals.

Following our involvement in Race Bank, Gravis successfully participated in the Enhanced Pre-Qualification (EPQ) phase of two tenders launched by Ofgem, becoming one of the first new participants in years to pass the first phase of an OFTO tender.

The UK has significant potential to accelerate the growth of its offshore wind sector. Achieving this will require a combination of coordinated actions that could boost installed capacity and support the government's objectives. The most important areas to consider include:

Support for floating offshore wind: Floating turbines can now harness deeper waters, opening up new geographic areas beyond the North Sea.

Improved supply chains: There is high demand but limited supply of larger turbines and HVDC (high-voltage direct current) cables, resulting in long waiting times. Strengthening these supply chains is crucial.

Enhancement of the OFTO regime: More support is needed for potential investors entering this highly competitive sector where only a few players have experience. Reducing the costs of participating in tenders would encourage newcomers to invest.

Faster planning approvals: Streamlining planning and environmental approval processes would accelerate project delivery.

Enhanced Contract for Difference (CfD) scheme: Increasing the CfD budget dedicated to floating and offshore wind would provide revenue certainty for developers and incentivise investments.

Shared offshore infrastructure: Evolving regulatory frameworks to allow shared cables or substations could reduce overall costs.

Decentralised supply chains: Developing more regional fabrication hubs could reduce costs and logistical challenges.

National grid strengthening: Upgrades to the National Grid are essential to accommodate increased connection demand, alongside battery storage to ensure system stability.

If these actions—or even a combination of them—were implemented, the impact would be transformational across energy, the economy, the environment and society. The UK could become a global leader in the sector.

Offshore wind could supply 50-70% of the country's total electricity demand by 2035. With larger turbines, floating wind technology, and hybrid solutions, total generation capacity could reach 50-100 GW or more.

This would accelerate progress toward Net-Zero targets and provide reliable, predictable electricity, reducing dependence on fossil fuels and lowering carbon emissions. The financial and social benefits would also be substantial, creating jobs and developing local supply chains in areas where residents currently have fewer opportunities.

Important Information

This article has been prepared by Gravis Capital Management Limited (the "Investment Adviser“ or “Gravis”) and is for information purposes only. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this article outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction and are treated as having represented that they are able to receive this article without contravention of any law or regulation in the jurisdiction in which they reside or conduct business.

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Gravis Capital Management Ltd is authorised and regulated by the Financial Conduct Authority; registered in England and Wales No: 10471852 and its principal place of business is 24 Savile Row, London W1S 2ES.