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Oil Company Investment in Offshore Windfarms: A Business Case

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  • Petter Osmundsen
  • Magne Emhjellen-Stendal
  • Sindre Lorentzen

Abstract

European petroleum majors have moved into offshore windfarm projects, with large investments and ambitious capacity and production targets. In aggressive bidding for Contracts for Difference in the UK, where oil companies have played a key part, we have seen the inflation-adjusted strike price fall 65% from 2015 to 2019. Researchers question whether LCOE will fall to the same extent and would like to see more research on the economic return of the companies making offshore wind investment. We address this by a transparent project economics analysis of the UK bottom-fixed Dogger Bank project. It is the largest offshore windfarm project in the world under development and the UK is the country with highest off-shore wind capacity. The project is owned by Equinor, SSE Renewables and ENI. Our analysis shows that the project is expected to be unprofitable. Several of the input variables, however, are subject to considerable estimation uncertainty. We also present a low case and a high case scenario. Decomposition of the high case reveals factors that can contribute to a profitable wind power industry. We discuss financial issues facing oil company investment portfolios combining low return/ low risk renewables and high return/high risk petroleum. Offshore windfarms are organised as special purpose vehicle (SPV) companies. We analyse the economic interactions between the SPVs and the oil companies, and address accounting and financial issues.

Suggested Citation

  • Petter Osmundsen & Magne Emhjellen-Stendal & Sindre Lorentzen, 2024. "Oil Company Investment in Offshore Windfarms: A Business Case," The Energy Journal, , vol. 45(2), pages 111-136, March.
    • Handle: RePEc:sae:enejou:v:45:y:2024:i:2:p:111-136
    DOI: 10.5547/01956574.44.6.posm
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    References listed on IDEAS

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    1. Jonathan A. Cook and C.-Y. Cynthia Lin Lawell, 2020. "Wind Turbine Shutdowns and Upgrades in Denmark: Timing Decisions and the Impact of Government Policy," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 81-118.
    2. Williams, Eric & Hittinger, Eric & Carvalho, Rexon & Williams, Ryan, 2017. "Wind power costs expected to decrease due to technological progress," Energy Policy, Elsevier, vol. 106(C), pages 427-435.
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