Hywind Tampen, project NPV calculation with and without subsidies

Abstract

Equinor is currently considering the development of an offshore wind farm on the Tampen area in the North Sea. The plan is to partly supply the five installations Gullfaks A, B, C and Snorre A and B with renewable energy. This will cut CO2 emissions by approximately 200 000 tons, and NOx emissions by 1000 tons annually. For this project they have been granted 566 million NOK in support from the Norwegian NOx-fund. Equinor has also applied for Enova support of 2.5 billion NOK. In this thesis the authors attempt to estimate the levelized cost of energy (LCOE) for the current electricity generation by use of gas turbines generators, and the LCOE for the Hywind Tampen wind turbines. Finally, the projects NPV are calculated with and without subsidies. The authors have developed their own CAPEX and OPEX estimates for Hywind Tampen. Where Equinor is using a CAPEX of NOK 5 billion, the estimate in this paper is NOK 3.9 billion. Economic models are developed to estimate the LCOE for the current generation of electricity by gas turbine generators. The gas turbine generators themselves, and to a large degree the operation and maintenance of them are sunk costs. They are already built and must be maintained to be ready for the days without wind. The savings for Equinor by setting the HWT project in production will come from selling gas instead of burning it to generate electricity, and from reduced CO2 and NOx taxes. The calculations show that from a strict plant economical point of view, it is not recommended to go ahead with the HWT project, because with a 10% discount rate, NPV is negative by 2.5 Billion NOK, without all subsidies. Furthermore, if the HWT project is realized, electricity that currently is generated at NOK 0.77 NOK/ kWh, is replaced by electricity that will be generated at a LCOE of 1.66 NOK /kWh. When the already granted the subsidies from the NOx fund are taken into the model in year 0, with a 3.9 Billion NOK CAPEX, NPV is still negative at – 1.9 Billion NOK. If also the Enova Subsidies of 2.5 Billion NOK are granted, and taken into the model in year 0, NPV is actually positive by 564 MNOK. At Equinors own CAPEX estimate of 5.0 Billion NOK NPV is again negative at – 521 MNOK.

Should the project be realized, a thorough evaluation regarding the reduced steam generation from Waste Heat Recovery Units is recommended. Our data suggests that if more than 70MW of gas turbine power is replaced by wind power, the platforms may end up with not enough steam for process purposes. It can be an option to scale down to a 70 MW wind park, 9 turbines instead of 11, to avoid problems with reduced steam generation from Waste Heat Recovery Units. The HWT Project can also partly be seen as a Research and Development investment, or as a marketing cost for Equinor. These kind of positive effects of the HWT project are outside the scope of this thesis. The approach in this thesis are strictly plant economical.