Financial Analysis

The project was assumed to be operational over a 20 year period. CAPEX investments were assumed to occur 4 years prior to the start of the 20 year operating period, with the installation portion being allocated at 1 year prior to the operating period. DECEX was assumed to occur in year 20 – therefore, the entire project duration is 24 years. Discounting was used and the rate was set at 3.5%, as recommended by the UK Treasury to reflect the intergenerational benefits of renewable energy projects such as this one. For all cost inputs, no allowances have been made for future cost reductions and inflation was not included.

Where:

LCOE = the average lifetime levelised cost of electricity generation

Cx_t = Capital Expenditure in the year t

Ox_t = Operating Expenditure in the year t

E_t = Electricity Generation in year t

r = Discount Rate

n = Economic life of the system

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In addition, insurance was included at a rate of 2% of the total OPEX. [8]

The annual operating expenditure was therefore calculated as £12.6m for the base case.

One study into the predicted costs of floating offshore wind farms was carried out by Myhr [9]. This paper used a bottom-up approach to assess the lifecycle costs of developing and operating a floating offshore wind farm. It also used fixed, bottom mounted offshore wind turbines as both a comparison case, and to validate the cost model.

In our analysis, it was necessary to calculate the CAPEX for 3 different scenarios:

In all cases 6MW Siemens turbines were used.

To validate our model, the project inputs (depth, distance etc.) were set to be the same as given in the Myhr paper. The base case CAPEX of £2.72m/MW (3.52m €/MW) for a standard Offshore Floating Turbine was within 8% of the cost predicted by Myhr.

1. Standard Floating Wind Turbine

2. TETHYS Floating Wind Turbine

The standard offshore wind turbine was used as the basis for wind turbines installed using the TETHYS concept; however, the Substation & Export Cable were calculated per MW for the entire system incorporating the wave energy output. In addition, no Substation Base was required. Finally, wind turbine installation was assumed to be 0.5 x Myhr as the installation method differed significantly. The CAPEX was calculated to be £2.27m/MW.

3. Platform Mounted Wind Turbine

Finally, the CAPEX was calculated for the two platform-mounted wind turbines. These were found to be significantly less expensive due to not requiring moorings, floating bases and inter-array cables. The CAPEX was calculated to be £1.34/MW.

Capex Comparison

It should be noted that the above CAPEX values are not directly comparable as only the standard floating OWT contains costs for the substation and export cable. The chart below shows the CAPEX with these costs removed.

As can be seen, the installation method and removal of the substation base reduces the CAPEX; however, not nearly as significantly as siting the turbine on the TETHYS platform itself.

First, the operating costs of operating crew transfer vessels from the platform/mothership to the wind turbines were calculated using a bottom-up approach to calculate charter rates, fuel use and staffing costs based on the estimated number of visits and distance to each turbine.

The crew transfer vessel specification is:

The number of wind turbine visits was assumed to be 10 per year. A more thorough analysis could be carried out using Monte-Carlo simulation [5]; however, for the purposes of this investigation this simplification was considered acceptable. Each CTV could service 30 turbines per year and required two skippers on back-to-back rotation. In addition, the number and cost of crew (O&M Technicians, O&M Managers etc.) was calculated based on the following rates

*After calculating the number of personnel required for each wind farm size, the number was rounded to the nearest integer.

The annual cost was calculated over a range of different sized wind farms, from 7 to 250 turbines. The relationship was found to be relatively linear, and therefore a trend-line was overlaid in excel and its equation noted. This equation was then used in the overall cost model to calculate the cost of this portion of the O&M.

Second, using the CAPEX cost references in the Myhr paper as a starting point, which consisted of wind turbine spare parts, CTV & personnel, and the cost of operating the mothership, the cost of each proportion was calculated. To achieve this it was necessary to begin by separating the wind turbines spares, this was done by finding the cost associated with solely the CTV, personnel and mothership from a paper by Dalgic [5]. Then, because the cost for the CTV & Personnel had already been calculated using a bottom-up approach, the resultant cost of the mothership (excluding the CTV & personnel) was found. Finally the proportion of the CAPEX cost relating to WT Spares was back-calculated and found to be 1.39% of CAPEX. Again, a validation check was carried out by using the same project related parameters as the reference papers and the result was within 4% of the predicted cost.

The total OPEX for the standard floating offshore wind turbine was calculated to be £97k/MW, while the TEHYS version was £69k/MW. Due to not requiring CTVs, the two platform mounted wind turbines OPEX is significantly reduced at £47k/MW.

Assumption: cost of energy stays at strike price after 15 years.

The LCOE model was used to calculate the cost of electricity production for two scenarios:

In both cases the wave energy was calculated using the following equation:

Annual Energy Yield=Capacity Coefficient x Rated Power x 8760 (MWh)

This was calculated for both the low and high cases, and then re-calculated using the WEC availability factor of 90% - the resulting annual energy yields were:

To maintain the 20% wind to wave ratio, the number of wind turbines in the floating wind farm had to be matched in each case. As a result, the number of wind turbines required in the low case was 6 and in the high case 18. In both cases, 2 wind turbines were situated on the platform and the remainder would constitute the floating array surrounding the platform.

The wind farm annual energy yield was calculated using the methodology described.

To evaluate the profitability of the two cases, the energy sales price were set at the average contracts for Difference Strike Prices as follows:

As a result, the low case would make a loss of 60% and the high case would make a profit of 22% over the lifetime of the project.

Discussion of Results

It is clear from observation of the results that if the capacity coefficient of the wave energy device is lower than that predicted by the designers of the technology, Float Incorporated, then, in the configuration analysed, the TETHYS is not viable – this is due to the large capital investment and operational costs associated with the platform. If the technology is proven to be successful then the platform will result in a profit while maintaining the ratio of 20% wave energy to 80% wind energy.

The same inputs were used, with the main variable being the number of wind turbines and therefore the annual energy yield. As the number of wind turbines increases, conversely the wind to wave ratio cannot be maintained at 20%. The results were analysed from 25 to 150 wind turbines, representing wind farm sizes consistent with those currently in operation or in planning.

As can be observed in the previous chart, as the wind farm size increases the LCOE reduces in all three cases. It is interesting to note the LCOE for the mothership tends to level off beyond 100 turbines, while the TETHYS high and low cases continue to reduce more significantly as the wind farm size increase – due to the CAPEX of the platform becoming a smaller proportion of the overall cost. It is also evident that the LCOE is not significantly different in all three scenarios except for the smallest size. Small changes to any of the assumptions could easily change which scenario is the least expensive – however, the key point is that the LOCE is comparable.

While LCOE is a good measure to compare different technologies, as was previously discussed; however, due to the different strike prices attracted by wind and wave, it is worthwhile comparing the expected profits in the three scenarios and the results are presented below:

Again, with increasing wind farm size the profits show marked improvement and in all cases. A 150 turbine TETHYS concept with the higher performance (41% capacity coefficient) wave energy collector would outperform the mothership with an expected annual profit of 54%, compared to 47% for the mothership.

The main areas where either assumptions were made, or there was significant uncertainty that could result in changes to the LCOE were:

Therefore, sensitivity analyses were carried out for these variables using the 50 wind turbine reference case for either the TETHYS “high” scenario (with 41% Wave Energy Capacity Coefficient).

Discussion

Substation and Flexible Export Cable Costs

As described the best option for the electricity export system is DC converters/substation and a flexible DC export cable (due to the movement of the platform). DC substations are not uncommon; however, the flexible cable has only recently come on the market and, as such, the costs are unobtainable. For this base case analysis, the export cable was assumed to be twice the cost of a regular DC cable, low and high cases were assumed to be 1 x DC Cable cost and 4 x DC cable cost respectively. The export cable is often cited as one of the main cost contributors for offshore wind. In this analysis it is clear that the cable cost will impact the overall cost, but it is not a single over-riding factor.

Mothership Operating Costs

The mothership concept uses a substantial quantity of fuel for station holding and operations – typically around 25000 tonnes per year resulting in a cost of about £10m per year (depending on the scenario). Fuel prices are known to fluctuate and reports indicate that by 2030 prices are likely to increase by 1.5x the current price [12]. Additionally, charter rates are set by the market and also fluctuate. For the purpose of the sensitivity analysis fuel costs were set to £550/ton for the base case, £440/ton (0.8x) for the low case and £825/ton (1.5x) for the high case. The mothership charter rates were set to £30k for the low case, £40k for the base case and £50k for the high case.

It is clear that these costs have a similar effect on the LCOE as the export cable cost and, unlike capital expenditures the cost cannot be agreed during the pre-construction stage – throughout the lifetime of the project the financial performance will be influenced by these variable costs.

TETHYS Size

The breadth dimension of the platform is fixed, dependant on the required rated power of the wave energy converters, conversely the front to back “width” of the platform can be minimised as far as possible to reduce costs. The only constraints are the structural integrity, stability and topsides facilities requirements. The base case dimensions was 50m, and the low case was set to 40m; the high case to 60m. While it clearly does affect the LCOE, it is not as critical as some of the other variables.

TETHYS Concrete Cost

Since the platform uses over 300,000 tons of pre-stressed concrete, the cost of this could become an important factor. Historical cost data was assessed to find the range of costs in the last 10 years [13]. The low case was set to 92% of the base case and the high case set to 106% of the base case. Again, the overall costs is influenced by this variable and, while the historical data show the variance is not large – in future the costs could change more significantly.

Discount Rate

The discount rate is used to discount future cash flows to the Present Value. Selecting the correct rate is a topic which has been researched, discussed and guidelines have been published. There remains, however, considerable disagreement as to which rate to choose. It is common practice to use a rate of 10% [14], due to the risks and unknowns associated with first of a kind renewable energy projects. However, using high rates heavily penalises projects with high initial investments and low decommissioning costs, conversely, it is beneficial to use high discount rates for projects with very high decommissioning costs, such as oil & gas production and nuclear power [15]. It has been argued that projects that provide substantial social and environmental benefits to future generations should be assigned a lower discount rate [10]. In addition, the TETHYS platform useful life is predicted to be over 50 years and, as such, it can continue to provide wind farm support facilities to a second wave of wind farms in the future.

As such, the discount rate was varied from 3% to 4%, with a base case of 3.5% which is the rate recommended by the UK Treasury for renewable projects [10].

Inspection of the above chart shows that even a 0.5% change in discount rate can substantially influence the LCOE. And, due to the higher capital but lower operating costs of the TETHYS platform, the discount rate results in a bigger fluctuation than with the Mothership.

As “super high” case was set at 10% to evaluate how this affected the economics – in this case the LCOE increased to £163/MWh for the TETHYS “High” Case and £146/MWh for the Mothership. Clearly selection of discount rates is contentious and highly influential.

Wind Turbine Installation

Late in the development of this project, it became clear that the TETHYS Concept could potentially reduce installation costs. However, with the available time it was not possible to assess the actual costs of the installation process. The base case was assumed to be 50% of the installation costs predicted by Myhr [9] as it was assumed that no inshore installation base would be required, with the associated heavy lift cranes etc. In addition, the need for upright towing of the assembled turbines would be lower, therefore significant savings would be made in tug charter and fuel costs. As these were based on assumption, the installation cost was assumed to be 25% of the Myhr estimate for the low case and 100% for the high case.

Again, considering the ever present drive for reducing LCOE – minimising of the installation cost of the wind turbine is worthwhile, but it is not one of the main cost drivers.

Wind Output

Somewhat surprisingly, a small increase or decrease in the output of the wind turbines can have a substantial effect on the overall cost. For both the TETHYS “High” case and the Mothership the base case power coefficient was set to be 50% and high case to 56%. When taking into account availability, electrical and aerodynamic losses this results in a base case of 44% Load Factor (low case 41.5% and high case 46.5%). As can be observed this has a noticeable impact on the LCOE but there is no real difference in the variance between the Mothership and TETHYS cases.

Wave Energy Climate

For the location selected for our project, like most UK sites, there is no high resolution wave data, only low resolution ranges. Therefore, this variable was assessed for its impact. The wave energy output for the TETHYS “High” scenario was 93090 MWh/yr in the base case. The high and low cases were set to 0.8x and 1.2x the base case.

Total Cost of TETHYS Concept

The final stage of the financial analysis was to calculate the total cost of the TETHYS platform, using the previously discussed ratio of 20% wave energy extraction and 80% wind energy. For this analysis the wave energy collectors were assumed to have a 41% capacity coefficient as per Float’s predictions. To balance this 16 wind turbines were required, with 2 on the platform and 14 in the surrounding wind farm.

The capital cost of the wind turbines and the platform make up 68% of the LCOE:

The final 2% is assigned to decommissioning; it should be noted that the use of discounting to calculate net present value results in the decommissioning costs appearing to be much lower than would be expected.

The final total summation of costs over the 20 year lifetime of the project, discounted to net present value is £851m, while the total sales from wave are £364m and wind £730m, which combined are £1,094m, therefore resulting in a profit before tax of 22%.

However, it would be naïve to think that this is the end of the story – the analysis presented was limited in scope and resource and therefore a number of assumptions and simplifications were required. Sensitivity analysis was carried out on the main assumptions and uncertainties to test the cost model’s susceptibility to changes in these inputs. Discount rate and the wind energy yield proved to be the most influential; however their effect is not vastly dissimilar between the mothership and TETHYS, meaning that these assumptions doesn’t significantly affect the comparison between the two.

A final note is that the analysis was carried out over a period of 20 years, due to the limit in useful life of wind turbines. It is estimated that the platform’s useful life could exceed 50 years, making the lifecycle cost more competitive.