Problem Definition
Your client is a London-based infrastructure fund (the "Fund") with about £12 billion under management, invested mainly in toll roads, regulated utilities and onshore renewables in the UK and Northern Europe. The Fund's investors are pension funds and insurers who want long-term, inflation-linked cash flows. The Fund has never owned an offshore wind asset.
A European utility (the "Developer") has offered the Fund a 50% stake in Harbor Wind, a 1,000 MW fixed-bottom offshore wind farm to be built in the southern North Sea, about 40 km off the English east coast. Harbor Wind won a Contract for Difference (CfD) in the UK government's Allocation Round 7 (AR7) auction in January 2026. The CfD guarantees a strike price of approximately £91 per megawatt-hour (MWh), in 2024 prices and indexed to inflation, for 20 years from first full operation. The project has reached final investment decision, turbines and cables have been ordered, and construction is planned for 2026–2030.
The Developer wants to sell half of the project to recycle capital for other projects. It is asking the Fund to pay £250 million upfront for the 50% stake and then to fund 50% of the remaining construction budget. The Fund's investment committee meets in two weeks. The managing partner has asked your team: What is a 50% stake in Harbor Wind worth to the Fund, should it accept the Developer's asking price, and what should the offer look like?
Additional InformationAsk for dataInterviewer’s data
If asked, please share that:
- Under a CfD, the generator sells its power in the market and receives (or pays back) the difference between the market reference price and the strike price. In practice, the project earns the strike price on every MWh it generates during the contract
- The CfD strike price is set in 2024 prices and rises with consumer price inflation (CPI), so the case uses real (2024) pounds throughout
- The Developer will build and operate the wind farm under a long-term contract; the Fund would have joint control over major decisions
- The Fund's target return for inflation-linked, contracted infrastructure is about 6% a year in real terms, before tax and financing
- After the 20-year CfD, the wind farm sells its power at market prices until the end of its life
Question 1Structuring
How would you structure the Fund's evaluation of the Harbor Wind stake?
Hint · Structuring
Build 3–4 branches that are specific to this client and question, not a generic framework. Check they don't overlap and together cover the problem.
Additional InformationAsk for dataInterviewer’s data
- Share only the Problem Definition at this stage
- If the candidate asks about the Fund's portfolio: offshore wind would be a new asset class for the Fund, and a £1.5–2 billion commitment would be one of its largest single investments
Try it first, then checkCheck my answerModel answer
A strong structure has four branches:
1. Cash flows of the project
- Revenue during the CfD (years 1–20): generation (capacity x hours x load factor) x strike price
- Revenue after the CfD (years 21–end of life): generation x expected market price
- Operating costs: maintenance, insurance, grid connection and use-of-system charges, lease payments
- Remaining construction spend and its timing
2. Value and returns to the Fund
- Present value of the Fund's 50% share of cash flows at its ~6% real target return
- Compare with what the Fund pays: the upfront price plus 50% of remaining construction cost
- Cross-check with recent comparable offshore wind stake sales
3. Risks
- Construction: cost overruns, delays, supply chain (turbines, vessels, cables)
- Volume: wind resource, turbine availability, wake losses, grid curtailment
- Price: market prices after the CfD ends; hours with negative power prices
- Regulatory and policy: CfD terms, grid charging reform, seabed lease terms
4. Fit and deal terms
- Size and concentration in the Fund's portfolio; lack of in-house offshore expertise
- Governance rights, construction-cost sharing, operator performance guarantees
- Price mechanisms that share risk: deferred payments, earn-outs linked to actual generation
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will cover the project's cash flows, the risks and the price. A strong candidate will separate the contracted period (20 years at a fixed real price) from the merchant period (market prices), and will split risks into construction, volume (wind), price and regulatory buckets. An excellent candidate will also ask about fit with the Fund (size, concentration, lack of offshore expertise) and the deal terms (governance, who carries construction overruns, price adjustments).
Push back if the candidate treats this like a standard acquisition of a mature company. The key features are that the asset is not yet built, that revenue per MWh is fixed for 20 years, and that the volume of MWh is not.
So What? cascade:
- Level 1: the CfD makes revenue very predictable, so the stake looks low-risk
- Level 2: the CfD fixes the price per MWh but not the number of MWh, so wind resource, availability and construction cost become the main drivers of value
- Level 3: the Fund's offer should be built around the assumptions it cannot control (wind yield, construction budget, market prices after year 20), not around the Developer's base case
Question 2Numeracy
Using Exhibits 1 and 2, estimate Harbor Wind's annual revenue and EBITDA in a typical year, both during the CfD and after it ends.
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
Exhibit 1Harbor Wind Project Data (Developer's Base Case)
| Item | Value |
|---|---|
| Installed capacity | 1,000 MW |
| Net load factor (expected average output as % of maximum) | 50% |
| CfD strike price (2024 prices, CPI-indexed) | £91.20/MWh |
| CfD term | 20 years from full operation (2030) |
| Operating life | 35 years |
| Operating costs (O&M, insurance, grid charges) | ~£140,000 per MW per year |
| Total project cost | |
| Remaining construction cost from today to full operation | £3.0 billion |
Source: Harbor Wind case file
Exhibit 2UK Offshore Wind Benchmarks
| Benchmark | Low | Medium | High |
|---|---|---|---|
| Total capital cost (£ per kW, 2023 prices) | ~3,300 | ~4,000 | ~4,400 |
| Operating costs incl. grid charges (£000 per MW per year) | ~74 | ~139 | ~207 |
| Net load factor | ~46% | ~50.5% | ~56% |
| Operating lifetime | 35 years | 35 years | 35 years |
| Hurdle rate used in government cost study | ~6.2% | ~6.2% | ~6.2% |
| Market reference | Value |
|---|---|
| AR7 offshore wind strike price, England and Wales (2024 prices) | ~£91/MWh |
| AR7 fixed-bottom offshore wind awarded | ~8.2 GW (8.4 GW including floating) |
| Average UK wholesale power price, 2025 | above £80/MWh |
| Global weighted-average LCOE of offshore wind, 2024 | ~$0.079/kWh |
| Global average installed cost of offshore wind, 2024 | ~$2,850/kW |
Sources: DESNZ / Arup, Renewable Energy Generation Cost and Technical Assumptions – Offshore Wind (2025); DESNZ AR7 results (2026); Energy UK (2026); IRENA (2025). Figures rounded.
Source: Harbor Wind case file
Additional InformationAsk for dataInterviewer’s data
Share Exhibits 1 and 2. If asked:
- Assume 8,760 hours in a year
- The Fund's power-market advisers forecast an average market price of about £60/MWh (2024 prices) after the CfD ends, when much more wind and solar capacity will be on the system
- Ignore degradation, taxes and financing for this question
Try it first, then checkCheck my answerModel answer
Step 1: Annual generation
- 1,000 MW x 8,760 hours x 50% = 4,380,000 MWh (4.38 TWh)
Step 2: CfD period (years 1–20)
- Revenue: 4,380,000 MWh x £91.20 = £399.5 million
- Operating costs: 1,000 MW x £140,000 = £140 million
- EBITDA: £399.5M − £140M = £259.5 million (EBITDA margin ~65%)
Step 3: Post-CfD period (years 21–35)
- Revenue: 4,380,000 MWh x £60 = £262.8 million
- EBITDA: £262.8M − £140M = £122.8 million (EBITDA margin ~47%)
Step 4: Benchmark check
- Capital cost of
£3,400/kW is close to the low end of the UK range (£3,300–4,400/kW). The Fund's technical advisers should confirm why: shallow water, a short export cable or early turbine orders could explain it, but a low budget is also a warning sign for overruns - A 50% load factor is in line with the medium benchmark (~50.5%), but the range runs from ~46% to ~56%, so wind resource is a key diligence item
- Operating costs of £140,000 per MW are in line with the medium benchmark (~£139,000)
| Metric | CfD years (1–20) | Post-CfD years (21–35) |
|---|---|---|
| Generation | 4.38 TWh | 4.38 TWh |
| Price | £91.20/MWh | ~£60/MWh |
| Revenue | £399.5M | £262.8M |
| Operating costs | £140M | £140M |
| EBITDA | £259.5M | £122.8M |
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will calculate generation and revenue correctly and keep units under control (MW, MWh, TWh). A strong candidate will produce both the CfD-period and the post-CfD EBITDA. An excellent candidate will compare Harbor Wind's assumptions with the benchmarks: its capital cost is below the medium case, its load factor is roughly the medium case, and its operating costs are close to the medium case.
So What? cascade:
- Level 1: EBITDA is about £260 million a year during the CfD
- Level 2: after the CfD, EBITDA more than halves (to about £123 million), because the market price is assumed to fall to about £60/MWh while operating costs stay the same
- Level 3: most of the value sits in the 20 contracted years, but the post-CfD years are highly sensitive to a price forecast nobody can verify, so the Fund should not pay much for them
Question 3Numeracy
Using the discount factors in Exhibit 3, what is the 50% stake worth to the Fund? How does that compare with the Developer's asking price of £250 million?
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
Exhibit 3Discount Factors at 6% (Real)
| Cash flow | Discount factor (present value of £1 a year) |
|---|---|
| £1 a year for years 1–20 | 11.47 |
| £1 a year for years 21–35 | 3.03 |
| £1 a year for years 1–35 | 14.50 |
The factors are standard annuity factors at a 6% discount rate. For example, £1 a year for 20 years is worth £11.47 today.
Source: Harbor Wind case file
Additional InformationAsk for dataInterviewer’s data
Share Exhibit 3 and the following simplifications:
- Value everything at the start of operations and treat the remaining £3.0 billion of construction cost as if it were paid at that point
- The Fund would pay 50% of the remaining construction cost (£1.5 billion) on top of the upfront price
- Ignore tax, debt financing and decommissioning
Try it first, then checkCheck my answerModel answer
Step 1: Present value of project cash flows
- CfD years: £259.5M x 11.47 = £2,976 million
- Post-CfD years: £122.8M x 3.03 = £372 million
- Total present value: £2,976M + £372M = £3,348 million
Step 2: Value of the project after construction cost
- £3,348M − £3,000M = £348 million
Step 3: Value of the 50% stake
- 50% x £348M = ~£174 million
- This is the most the Fund should pay upfront if it wants to earn its 6% real target
Step 4: Compare with the asking price
- Asking price: £250 million
- Gap: £250M − £174M = £76 million, so the asking price is about 44% above the stake's value to the Fund
- At the asking price, the Fund's total outlay would be £250M + £1,500M = £1,750M for 500 MW of attributable capacity, or £3.5 million per MW. At £174M it would be £1,674M, or ~£3.35 million per MW
Step 5: What does the Developer have to believe?
- To justify £250M, the project must be worth £500M after construction cost, i.e. £152M more than the base case
- Each 1 percentage point of load factor is worth: 87,600 MWh x (£91.20 x 11.47 + £60 x 3.03) = 87,600 x (£1,046 + £182) = ~£107.6M of project value. £152M / £107.6M = ~1.4 points, so the load factor would need to be ~51.4%
- Alternatively, each £1/MWh of post-CfD price is worth 4.38M MWh x 3.03 = ~£13.3M. £152M / £13.3M = ~£11.5, so the post-CfD price would need to be ~£71.5/MWh instead of £60
Note on the simplification: the remaining construction cost is in reality spent over about four years before operations begin, so its cost in today's money is higher than £3.0 billion and the true stake value is lower than £174 million. This strengthens the conclusion that £250 million is too high.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will calculate the present value of the two EBITDA streams, subtract the remaining construction cost and take 50%. A strong candidate will express the result as a maximum price and compare it with the asking price. An excellent candidate will work out what assumption the Developer must be making to justify £250 million, and will note that treating construction spend as paid at the start of operations flatters the result (in reality some is paid years earlier, which lowers the value further).
So What? cascade:
- Level 1: the stake is worth about £174 million at the Fund's target return
- Level 2: the asking price of £250 million is about £76 million (~44%) too high
- Level 3: to justify £250 million, the Fund would need to believe in either a load factor above ~51% or post-CfD power prices of about £72/MWh, both above the base case, so the Developer is asking the Fund to pay upfront for upside that it cannot yet verify
Question 4Judgement & Insights
The Fund's analysts have run a sensitivity analysis and collected recent comparable transactions (Exhibits 4 and 5). What do they tell you, and how should they shape the Fund's offer?
Hint · Judgement & Insights
Read the exhibit title, axes and units first. Lead with the ‘so what’, then back it with one or two numbers.
Exhibit 4Sensitivity of the 50% Stake Value (£ million)
| Scenario | Project value after construction cost | Value of 50% stake | Change vs. base |
|---|---|---|---|
| Base case (load factor 50%, post-CfD price £60, costs as planned) | 348 | 174 | – |
| Load factor 48% | 133 | 66 | −108 |
| Load factor 46% | −82 | −41 | −215 |
| Remaining construction cost +10% (£3.3bn) | 48 | 24 | −150 |
| Operating costs +15% (£161k per MW) | 44 | 22 | −152 |
| Post-CfD price £45/MWh | 149 | 75 | −99 |
| Post-CfD price £75/MWh | 547 | 274 | +100 |
All values at 6% real discount rate, using the simplifications from Question 3.
Source: Harbor Wind case file
Exhibit 5Recent UK Offshore Wind Stake Sales
| Date | Project | Capacity | Stake sold | Buyer type | Reported terms |
|---|---|---|---|---|---|
| Nov 2025 (closed Dec 2025) | Hornsea 3 | ~2.9 GW | 50% | Alternative asset manager | |
| Jan 2026 | Norfolk Vanguard East and West | ~3.1 GW | 50% | Private equity / infrastructure investor | Price not disclosed; projects hold AR7 CfDs at £91.20/MWh (2024 prices) for 20 years |
Sources: company announcements and trade press (see Data Sources). Figures rounded.
Source: Harbor Wind case file
Additional InformationAsk for dataInterviewer’s data
Share Exhibits 4 and 5.
Try it first, then checkCheck my answerModel answer
What the sensitivities show
- Wind resource is the biggest risk. Each point of load factor is worth about £54M of stake value. At 46%, the low end of the UK benchmark range, the stake is worth less than nothing. The Fund needs an independent wind-resource and wake-loss study before signing, not the Developer's figures.
- Construction and operating costs come next. A 10% construction overrun (£300M) or 15% higher operating costs takes the stake value down to about £22–24M. Harbor Wind's budget of ~£3,400/kW is near the low end of UK benchmarks, which makes an overrun more likely, not less.
- Post-CfD prices matter, but less. A £15/MWh swing in the post-2050 price moves the stake by about £100M either way. Because these cash flows are 20+ years away, the Fund should put little weight on optimistic price forecasts.
- The risk is asymmetric. Most plausible surprises (lower wind, cost overruns, higher grid charges) reduce value; the main upside (higher post-CfD prices) is distant and uncertain.
What the comparables show
- The Hornsea 3 deal implies about £3.1M per attributable MW including construction funding. At the asking price, the Fund would pay about £3.5M per MW for Harbor Wind, roughly 13% more, for a project with a smaller scale and no track record for the Developer in this location
- The comparables are only a rough guide: contract prices, construction progress and deal terms differ. Ørsted put Hornsea 3's total project investment at about DKK 70–75bn, so the buyer's ~DKK 39bn was only about 4–11% above its 50% share of build cost (DKK 35–37.5bn), for a larger project from the world's most experienced offshore developer. Sophisticated buyers are paying only a modest premium over build cost, so the comparables do not justify paying ~13% more per MW for Harbor Wind; the Fund's own valuation (Question 3) should drive the price
How this should shape the offer
- Upfront price well below £250M, anchored on the ~£174M base-case value, with room to negotiate down after the Fund's own wind study
- Deferred payment (earn-out): for example, £120–150M at signing plus up to £50–75M paid after three years of operation if actual load factor exceeds 50%. This lets the Developer receive its asking price only if its wind assumptions prove correct
- Construction protections: the Developer bears overruns above an agreed budget (or the Fund's share of overruns is capped), and there are liquidated damages for delay under the construction contracts
- Operating protections: availability guarantees from the operator and turbine supplier for the first 5–10 years
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will identify the most important sensitivities and read the comparables correctly. A strong candidate will note that the downside is much bigger than the upside for the variables the Fund cannot control, and that a few percentage points of load factor can wipe out the stake's value. An excellent candidate will turn this into deal terms: price, conditions and mechanisms that shift risk to the party best able to manage it.
So What? cascade:
- Level 1: load factor, construction cost and operating cost each move the stake value by £100–200 million
- Level 2: the stake's value is small compared with the capital committed (£174M on top of £1.5bn), so it has almost no cushion; a 4-point miss on load factor or a 10% cost overrun eliminates most or all of it
- Level 3: the Fund should not take this risk at a fixed upfront price; it should protect itself through a lower upfront price, contingent payments tied to actual generation, and construction-cost protections from the Developer
Question 5Synthesis
The managing partner needs a recommendation for the investment committee. What do you recommend?
Hint · Synthesis
Answer first: the recommendation, two or three reasons with numbers, then risks and next steps.
Additional InformationAsk for dataInterviewer’s data
- If needed, remind the candidate: stake value ~£174M vs. asking price £250M; EBITDA ~£260M a year during the CfD; each 1 point of load factor is worth ~£54M of stake value; Hornsea 3 benchmark ~£3.1M per MW
Try it first, then checkCheck my answerModel answer
Recommendation: Pursue the stake, but do not accept the £250 million asking price. Offer about £150 million upfront plus a performance-linked earn-out, and walk away if the Developer will not share construction and wind risk.
Why the asset fits the Fund:
- Inflation-linked, contracted cash flows. For 20 years, Harbor Wind earns a CPI-indexed price of about £91/MWh on every MWh it produces, generating about £260M of EBITDA a year, which is exactly what the Fund's pension and insurance investors want.
- A strategic entry into offshore wind alongside an experienced developer and operator, in a market where the UK government continues to award large volumes of capacity (about 8.4 GW in AR7).
Why the price must be lower:
- At the Fund's 6% real target, the stake is worth about £174M, about £76M below the asking price, and that is before accounting for construction spend occurring years before operations.
- The asking price assumes upside the Fund cannot verify: a load factor of about 51.4% or post-CfD prices of about £72/MWh.
- Comparable deals point lower: the Hornsea 3 stake sale implies about £3.1M per MW including construction funding, versus about £3.5M per MW at the asking price.
Proposed offer:
- ~£150M at signing, plus an earn-out of up to ~£75M after three years of operation if the average load factor is above 50%
- Construction overruns above budget borne mainly by the Developer; delay damages passed through from contractors
- Operator availability guarantees and joint control over major decisions
Walk-away conditions:
- The independent wind study shows a P50 load factor below ~48%
- The Developer refuses any construction-cost protection
- The Fund's investment committee is not comfortable with a £1.5bn+ single-asset commitment in a new asset class
Next steps (two weeks): commission an independent wind-resource and wake study, a technical review of the construction budget and contracts, and a full financial model with construction timing, tax and project debt, then return to the Developer with the structured offer.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate will give a clear recommendation with a price. A strong candidate will link the recommendation to the risks and the deal structure. An excellent candidate will set out conditions under which the Fund walks away and the next steps before committee.
Data Sources
| Fact used in the case | Publisher | Title | Year | URL |
|---|---|---|---|---|
| AR7 offshore wind strike price £91.20/MWh (England and Wales) and £89.49/MWh (Scotland) in 2024 prices; 8.4 GW awarded, ~8.2 GW fixed-bottom | Department for Energy Security and Net Zero (DESNZ) | Contracts for Difference Allocation Round 7 results | 2026 | https://assets.publishing.service.gov.uk/media/6966861de8c04eb2919f773a/contracts-for-difference-allocation-round-7-results-.pdf |
| AR7 strike ~£91/MWh; results announced 14 January 2026; average UK wholesale price above £80/MWh in 2025; CfDs for up to 20 years | Energy UK | Energy UK Explains: Allocation Round 7 offshore wind results | 2026 | https://www.energy-uk.org.uk/publications/energy-uk-explains-allocation-round-7-offshore-wind-results/ |
| Offshore wind capex ~£3,321 / £3,976 / £4,439 per kW; opex ~£73.7k / £138.5k / £207.2k per MW per year; net load factor 46.0% / 50.5% / 56.1%; 35-year life; 6.2% hurdle rate | DESNZ / Arup | Renewable Energy Generation Cost and Technical Assumptions – Offshore Wind (Cost of Electricity Report Update 2024) | 2025 | https://assets.publishing.service.gov.uk/media/6966a5c7e8c04eb2919f773d/lcoe-2024-offshore-wind.pdf |
| Global weighted-average offshore wind LCOE ~$0.079/kWh and installed cost ~$2,852/kW in 2024 | IRENA | Renewable Power Generation Costs in 2024 | 2025 | https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2025/Jul/IRENA_TEC_RPGC_in_2024_Summary_2025.pdf |
| Hornsea 3 (~2.9 GW): 50% stake sold for ~DKK 39bn including construction funding; total project investment ~DKK 70–75bn; completed December 2025 | Ørsted | Ørsted signs agreement to divest 50% stake in Hornsea 3 to Apollo | 2025 | https://orsted.com/en/media/news/2025/11/orsted-signs-agreement-to-divest-50-stake-in-horns-1465396411 |
| Hornsea 3 deal value ~£4.5bn | Energy Voice | Ørsted sells 50% Hornsea 3 stake to Apollo in £4.5bn deal | 2025 | https://www.energyvoice.com/renewables-energy-transition/wave-tidal/uk-wave-tidal/583396/orsted-sells-50-hornsea-3-stake-to-apollo-in-4-5bn-deal/ |
| Norfolk Vanguard East and West (~3.1 GW): 50% stake to KKR; AR7 CfDs at £91.20/MWh (2024 prices), 20 years, inflation-indexed; price not disclosed | RWE | RWE secures Contracts for Difference for 6.9 gigawatts of offshore wind capacity in UK Allocation Round 7 and agrees a long-term partnership with KKR | 2026 | https://www.rwe.com/en/press/rwe-ag/2026-01-14-rwe-secures-contracts-for-difference-for-6-9-gigawatts-of-offshore-wind-capacity/ |
Harbor Wind, the Fund and the Developer are fictional. Project-specific figures (capacity, capital cost, the £250M asking price, the £60/MWh post-CfD price forecast and the 6% target return) are illustrative and were chosen to sit within the sourced benchmark ranges above.
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