Project economics of offshore windfarms. A business case

Abstract

This report examines offshore wind investment by oil companies by means of a transparent and pedagogic project economics analysis. We discuss financing and economic return. Offshore windfarms are organised as special purpose vehicle (SPV) companies. We analyse the economic interactions between the SPVs and the oil companies, and address financing and accounting issues. Finally, we present potential challenges to the petroleum resource authorities from this change in the European majors’ investment strategy. Unlike windfarms onshore, offshore windfarms did not see cost reductions for many years. The wind turbine generators moved farther ashore and on deeper water, and the life cycle cost was actually increasing. Apparently, we now see a dramatic change. In aggressive bidding for Contracts for Difference in the UK, we have seen the strike price fall from around GBP 150/MWh in 2015 to around GBP 40/MWh in the auction rounds in 2019 (in 2012 terms). A question is how this will impact profitability of new development projects. Does the reduction in the strike price reflect a reduction in project cost or a reduction in project profitability, or maybe both? We examine this with a transparent project economics analysis of the bottom-fixed Dogger Bank project, owned by Equinor, SSE Renewables and ENI. It is the largest offshore windfarm project in the world and is set out to generate 5% of UK electricity production.