Encouraging Offshore Wind in Developing Countries: Novel Applications of Seabed Leasing Best Practices

• In Event: Designing for Diffusion: Opportunities and Barriers in Energy Transition

Abstract

Recent technological advances and cost decreases have improved the economic viability of offshore wind energy, reducing reliance on subsidies and increasing industry interest in developing offshore windfarms. Seabed leasing by government agencies have enabled numerous offshore wind projects in Northwest Europe and China—but offshore wind in developing countries is rare, as financial and technological uncertainties constrain seabed leases.

This study builds on established models of net present value for offshore energy investments in the oil and gas industry to develop a stochastic cash flow model of offshore wind viability under multiple seabed lease scenarios.  We leverage a proprietary dataset of all worldwide seabed leases for energy applications to calibrate our model, and analyze potential applications of Production Sharing Agreements (PSAs) to offshore wind developments. PSAs are contracts popular in the oil and gas industry because they provide public benefits like profit sharing, flexible fiscal terms, and knowledge and technology transfer. We conduct cash flow modeling based on a combination of existing contract terms and hypothetical wind farms based on a meta analysis of current offshore wind conditions and technologies. Our findings demonstrate that PSAs present a viable leasing mechanism that can foster offshore wind energy developments under multiple revenue sharing scenarios.

We combine stochastic cash flow “meta-modelling” with original interviews with offshore energy industry experts to validate the extent to which contracts adapted from the oil and gas industry could serve as an attractive leasing mechanism for developing countries seeking to catalyze offshore wind development. Interviews confirm PSAs as a feasible policy instrument for offshore wind development in developing country contexts, and further highlight four opportunities and best practices to translate oil and gas PSAs for offshore wind applications. These findings suggest that PSA terms could be used in conjunction with seabed auctions and power purchase agreements to open opportunities for developing countries to participate in the energy transition and improve long-term domestic energy security for many countries.

Authors

• Helen Croskell, University of Rhode Island
  Non-Presenting Co-Author

• Mallory E Flowers, University of Rhode Island
  Presenting Author