Subsidies & Profits At Sheringham Shoal Wind Farm
By Pau Homewood
h/t Dave Ward
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:
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.
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NOT A LOT OF PEOPLE KNOW THAT 
grammar “In other more than two thirds ”
..you mean in other WORDS In other more than two thirds of income comes from ROCs’
True!!
@ 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
≈(:-))
Useful : ROC : Renewable Obligation Certificates Explained By Ray Berry
Basically windfarms operate between a ‘ROC and an unprofitable place”
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?
Love the “Other” revenue of £1,222,000.
Could it, by any chance be from “Constraint payments”?
Truly, it generates subsidies, with electricity merely being a useful by-product.
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.
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
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.
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.
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?
During 2014/15, Offshore farms received 2x ROCs per MWh, reducing to 1.9 for 2015/6 & 1.8 for 2016/7
(Onshore farms received 0.9x ROCs per MWh).
http://www.ref.org.uk/energy-data/notes-on-the-renewable-obligation