The price of rapid offshore wind expansion in the UK: Implications of a profitability assessment

Highlights

The profitability of 14 early-stage offshore wind farms (1.7 GW) is assessed.

A standardised financial model of an offshore wind farm in the UK is presented.

Analysis is based on the extrapolation of financial data from annual reports.

The results indicate a return on capital of more than 15% and a decreasing trend.

Technology’s immaturity may cause unprofitable operation towards the end of farm lifetimes.

Abstract

With a total installed capacity of 5.1 GW and an expansion pipeline of 11.9 GW, offshore wind constitutes a story of success in the UK. The necessary foundation for this outstanding attainment is an energy policy that offered entities enough incentive in the form of profit and certainty so that investing in a rather immature technology became attractive. In this article, the profitability of 14 early-stage offshore wind farms (1.7 GW) is assessed with the objective to review at what price this rapid expansion occurred. Within the framework of a developed standardised financial model, the data from the offshore wind farms’ original annual reports were extrapolated, which made it possible to simulate their profitability individually. The results reveal a return on capital in the range of more than 15% and a decreasing trend. This implies that the levelised cost of electricity from the first offshore wind farms were underestimated in the past. In addition, a stress test revealed that the operation of some farms might become unprofitable towards the end of their planned lifetimes. The particular reliable data basis and novel modelling approach presented in this article ensure that this study is of high interest for offshore wind stakeholders.

Keywords

  • Offshore wind;
  • Expansion;
  • Profitability;
  • Levelised cost of electricity (LCoE);
  • Renewable energy policy

Abbreviations

  • OWF, offshore wind farm;
  • LCoE, levelised cost of electricity;
  • ROCs, renewables obligation certificates;
  • CfD, contract for difference;
  • CapEx, capital expenses;
  • OpEx, operating expenses;
  • SPV, special purpose vehicle;
  • LECs, levy exemption certificates;
  • REGO, renewable energy guarantees of origin;
  • IRR, internal rate of return

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