Floating Offshore Wind in Norway: The Business Case for a Floating Wind Project at Utsira Nord, and its Contribution Towards the UN Sustainable Development Goals and the Norwegian Offshore Wind Industry

Daniel Flo Shaafi & Oscar Jacobsen Sperre

Student thesis: Master thesis

Abstract

Over the last century, global warming has become a substantial threat to the Earth. Energy from fossil fuel sources needs to be reduced and replaced with renewable energy. Over the previous decade, offshore wind power installations have grown rapidly. However, the vast majority of the world’s wind resources are located in waters too deep for conventional bottom-fixed turbines. Thus, floating offshore wind turbines might be an attractive option for further growth. With the opening of the Utsira Nord site off the coast of Norway, a large-scale floating offshore wind project might become a reality. Therefore, this thesis aims to assess the financial attractiveness of a floating wind power project in Norway, consider the Project’s contributions to achieving the United Nations (UN) Sustainable Development Goals (SDGs), and the expansion of a Norwegian offshore wind industry. First, the thesis analyzes the Project’s financial attractiveness from a project developer’s viewpoint. This is done by estimating the costs and revenues for a potential 220 megawatt (MW) wind farm at Utsira Nord, with assumed commissioning in 2025. The financial assessment is conducted through a Discounted Cash Flow analysis in which the Project’s Adjusted Present Value (APV) and the Equity Internal Rate of Return are assessed. The financial study finds that the Project would not be profitable for a project developer on market terms, as it yields a negative APV of 1,980.8 million Norwegian Kroner (NOK). Thus, it is unlikely that the Project will be realized without subsidies. The study suggests that the minimum Contract for Difference strike price that would make the Project bankable is NOK 610.27/MWh. Alternatively, the study also finds that an upfront cash subsidy of NOK 2,057.6 million would result in the Project covering its cost of capital, assuming full exposure to wholesale market prices. In addition to the financial assessment, the thesis explored how the Project would contribute to the UN SDGs. Potential synergies and tradeoffs between the Project and the goals were mapped with Castor et al.’s (2020) Sustainable Development Impact Assessment Framework for Energy Projects. The findings suggest that the Project has valuable contributions for reaching the SDGs but also tradeoffs that must be considered. Furthermore, the study found that the Norwegian offshore wind industry will benefit from an early project realization. Norwegian companies possess leading knowledge and capabilities within the offshore petroleum and maritime sectors. Leveraging this experience to develop a Norwegian floating wind industry can yield significant economic gains. Therefore, the authors suggest that despite the negative profitability of the Project, subsidies can contribute to early action, giving a head start within floating technology for the Norwegian offshore wind industry.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2021
Number of pages135