ESRU

Financial Model Description

Cost Model

Introduction

As mentioned in the power calculation model section a baseline design second-generation MCT unit was utilised for this modelling exercise. This was due to the availability of costs for the system and to make the modelling exercise slightly simpler. The cost model has been developed looking at the varying costs of different size MCT schemes and making cost to scale relationships that could then be fed into the financial model. The costs for 1, 5 and 30 units have been stated.

Cost Breakdown

The costs have been broken down into the following areas:

• Capital Costs
• Baseline unit costs: Manufacture and assembly costs
• Additional offshore item costs: Substations and support piles
• Installation costs: Monopile and cabling
• Onshore item costs
• Overhead item costs
• Annual Costs
• Insurance
• Seabed rent
• Maintenance

Trends were then estimated with these costs to aid in determining the costs of different sized schemes. Due to market and technical development, and economies of scale the costs used within this model are more than likely to fall. Therefore the model allows the user to alter the costs of the different parameters.

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Financial Model

Introduction

The financial model was developed to give a basic pre-tax estimation to the breakeven point of a certain number of turbines for their specified power output. But it was primarily developed to assess the cost per kWh for a certain scheme size.

The model operates by taking the number of turbines and their resultant cost from the cost analysis model. The total power output is calculated by the power model. There are certain parameters that are adjustable within the financial model these are:

• Price of energy: This is broken down into three price parameters; basic electricity unit price, levy exception certificate and renewable obligation certificate. The last two parameters are dependant on contracts arranged between generators and distribution companies.
• Discount rate: This is used to determine the present value of future costs to aid in assessing whether the viability of a capital investment. This was also used to determine the present cost/kWh of electrical power generation for a certain MCT scheme.
• Renewables project grant: This is to allow any government grants for a scheme to be taken into account.

Model Assumptions

During the modelling exercise there were a few basic assumptions made. Due to the fact that this model was primarily developed to assess the price per kWh of a scheme certain investment parameters have not been included:

• Capital costs were spread over the first two years of the schemes lifespan.
• Standard energy prices were assumed.
• The discount rate was initially set to 8% but was varied to assess the sensitivity of the cost/kWh for the scheme.
• There is no tax included

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