The role of policies in reducing the cost of capital for offshore wind

Mak Đukan, Anurag Gumber, Florian Egli, Bjarne Steffen

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Offshore wind will play a critical role in decarbonizing Europe's energy infrastructure. Nevertheless, according to recent financing cost surveys, its investment risk expressed as the cost of capital (CoC) is higher than for onshore wind and solar photovoltaics. This perspective elaborates on the possible reasons behind the offshore wind CoC premium and potential remedies. Our analysis discusses that the massive capital expenditures and construction complexity have concentrated European offshore wind ownership among utilities and oil & gas companies that owing to their legacy investments in fossil fuel infrastructure, have higher return expectations for offshore wind assets. Furthermore, these large-scale investors are bidding zero and negative in highly competitive auctions for offshore wind sites, increasing the project's merchant risks and CoC. We discuss possible policy solutions to alleviate these risks, including revenue stabilization, enabling a more liquid refinancing market, and creating more robust corporate Power Purchase Agreements via government guarantees.

Original languageEnglish
Article number106945
JournaliScience
Volume26
Issue number6
DOIs
StatePublished - 16 Jun 2023
Externally publishedYes

Keywords

  • Energy policy
  • Environmental science

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