The profitability of pre-commercial floating offshore wind projects : a study of four funding mechanisms

Abstract

This thesis analyses the economic impact of different governmental support mechanisms on the investment in a pre-commercial floating offshore wind farm. An important contribution of this study is its investigation of funding regimes in the context of floating offshore wind and its analysis of the impact of subsidies from an investor’s viewpoint, rather than from a social welfare perspective. Despite its potential to help meet the world’s energy demand through clean electricity generation, thus mitigating climate change, floating offshore wind is not yet cost competitive with onshore wind generation or electricity generation from conventional sources. There is need for governmental support in order to encourage private investment to further develop the technology and achieve cost reductions through learning effects. This study investigates which type of support scheme is best suited to attract such investor support by evaluating the economic impact of four different funding mechanisms on a pre-commercial model floating wind farm. We analyse the market-based certificate scheme in Scotland and three different combinations of price-based mechanisms in Japan, France and Hawaii. We find that a tradable green certificate scheme, as constituted by the Scottish example, is best suited to encourage investor support because it yields the most favourable return on investment. Notably, the Japanese feed-in tariff system constitutes an almost equal investment opportunity. The authors therefore recommend policymakers choose between a market-based certificate scheme and a non-market based feed-in tariff scheme the one that best suits the economic philosophy associated with governmental funding prevailing in their respective jurisdiction. If a feed-in tariff is chosen, we recommend policymakers phase out this support once floating technology has reached a certain level of maturity and replace it with a feed-in premium. This support encourages a better integration of floating offshore wind into the electricity mix and into the market.