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Subsidies & Profits At Sheringham Shoal Wind Farm

May 15, 2016

By Pau Homewood   

 

h/t Dave Ward

 

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Dave sent me this piece from the EDP, although he has not found it on line yet. It relates to the Sheringham Shoal wind farm, and gives a useful insight into the offshore market.

Sheringham is owned by Scira Offshore Energy, and is the latter’s sole activity, according to Scira’s Annual Accounts.

Scira is in turn owned by Statoil (40%), Statkraft (40%) and the Green Investment Bank (20%).

 

The following information can be gleaned from the Accounts, available here.

 

1) Revenue for 2015 was £140.0 million, and is split:

 

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In other words, more than two thirds of income comes from ROC’s.

The Accounts also state that production last year was 1.17 TWh, so we can calculate unit revenue at £34.71/MWh for sales of power, and £83.90/MWh for the ROC’s, which is the subsidy element eventually passed on to consumers.

 

2) Profit after tax was £18.9 million, on equity of £447 million, giving a return on capital of 4.2%. However, there are also shareholder loans of £450 million outstanding, on which interest is paid.

It is therefore more sensible to look at profit before interest, which was £52.0 million. As the original capital cost amounted to £1366 million, the overall return last year, including interest, was 3.8%.

 

 

Whether they can maintain this level of profit is debatable. Although they say prevailing windspeeds were lower last year, capacity utilisation was up at 42%.

There is also the fact that they are now paying the Climate Change Levy. This could knock another £3 million off profits.

 

What all of this shows is that offshore wind is still an inherently expensive way of producing electricity.

13 Comments leave one →
  1. May 15, 2016 12:49 pm

    grammar “In other more than two thirds ”
    ..you mean in other WORDS In other more than two thirds of income comes from ROCs’

    • May 15, 2016 1:01 pm

      True!!

    • saveenergy permalink
      May 15, 2016 4:35 pm

      @ stew,…. more grammar !!!
      Not “in other WORDS In other more than two thirds of income comes from ROCs’ ”

      I think he actually means –
      in other WORDS, more than two thirds of income comes from ROC’s

      It’s a pedant afternoon in the sunshine
      ≈(:-))

  2. May 15, 2016 12:53 pm

    Useful : ROC : Renewable Obligation Certificates Explained By Ray Berry

    Basically windfarms operate between a ‘ROC and an unprofitable place”

  3. manicbeancounter permalink
    May 15, 2016 1:21 pm

    Capacity utilization of 42% appears to be quite an achievement. Maybe the prevailing wind speeds were lower than in the previous year, but for more of the time?

  4. Joe Public permalink
    May 15, 2016 1:52 pm

    Love the “Other” revenue of £1,222,000.

    Could it, by any chance be from “Constraint payments”?

    • Joe Public permalink
      May 15, 2016 3:54 pm

      Truly, it generates subsidies, with electricity merely being a useful by-product.

  5. manicbeancounter permalink
    May 15, 2016 1:58 pm

    I like to look at accounts occasionally to keep my hand in.
    Return on Capital Employed for SCIRA in 2015 was 4.3%, up from 3.0% in 2014. Nothing to write home about, but with assured index-linked returns it is pretty safe.
    The extent of subsidies required can be seen by the rate required to break even at operating profit level – that is before the huge finance costs for over £1200m of assets. Using Paul’s calculation it is £83/MWh. It is only massive subsidies that allow offshore wind turbine businesses to stay above water.

  6. May 15, 2016 4:43 pm

    I wonder how they will fare as each wind turbine performance degrades as the blades surfaces deteriorate and the mechanical parts start to wear and corrode. See http://www.ref.org.uk/publications/303-response-to-professor-mackays-comments-on-wind-farm-economic-lifetime-research

    • It doesn't add up... permalink
      May 28, 2016 12:07 pm

      I note they are writing down the investment over 24 years. Will it last that long? At anything under 18 years it would be making losses now.

  7. May 15, 2016 5:30 pm

    Paul – a sideways thought.

    Is standard economic thinking appropriate here? Have we missed the entire game with linear thinking?

    The project cost 1.4 billion. Where did the money come from? The banks, without a doubt. Say 80% just for argument, 1.1. They lend 6+X asset base and get interest. Say 3% x 7, 21%. So lending for this project generates not 33 million per year but 230 million per year. All this money being digital backed by the government, who gets taxes based on the 7x economic activity of 8.8 billion the combined activity created ….

    Seems like in the world of imaginary money and financial sorcery, you can live well by throwing cash in a deep hole.

  8. May 16, 2016 9:52 pm

    If ROC”s cost £83.9/MWh and sales cost £34.7MWh giving a total of £118.6MWh,and If we are paying this,then we are paying at twice the standard rate.
    Are my sums correct?

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