3 ms·

We need to be careful in not throwing the babies out with the bath water - the fees paid for the leases for these projects were so high that the projects would

by gehsty 2mo ago

We need to be careful in not throwing the babies out with the bath water - the fees paid for the leases for these projects were so high that the projects would not be economically viable in the first place. The developers are probably doing back flips behind closed doors that they have exited these positions without major financial impairments. This does not mean that renewables or offshore wind should not be built it just means that the regime around how sites are awarded, and how power purchase contracts are made need to be reworked. A lot of the world is struggling with this (recently UK re-tendered for Mona lease area with much more favourable conditions than r4 initial lease). Generally speaking I think the best approach would be to have almost zero / nominal lease fee, then have a competitive auction around a two sided CFD - if the market price is below the strike price the state makes up the difference, if the market price is above the strike price the excess goes back to the state.

Supermancho 2mo ago
> the fees paid for the leases for these projects were so high that the projects would not be economically viable in the first place. Can you explain where you got your information from? * The leases were already paid for (in total) in 2022-2023 for $1bn. * The expected output would have been 7gigawatts annually, which is a 5-7x return per year on paper. * The sale of the lease is due to a regulatory blockade, not a traditional cost benefit analysis.
- gehsty 2mo ago
  I’m not sure what I need to cite but logically when you’ve paid 1B for a lease up front, you’ll want to recoup that through the money you get paid for the electricity you generate. The project accounting probably includes a return on that similar to CAPEX (could be as high as 10%), so its impact grows every year as well. My feeling is that these projects would require offtake costs so high to be viable that they would not be appealing to the states that awarded the leases. The blockade from trump is a very appealing exit ramp for projects that are dead in the water. You can see in Germany / UK projects awarded with high lease costs failing (Mona already went pop in uk, I imagine any r4 lease not awarded cfd in AR8 will be returned, Total not moving forward with German portfolio…) I’ve worked on debt financed offshore wind projects for the last decade, the whole project viability hinges on devex/capex balanced against offtake and resource.
  - Supermancho 2mo ago
    > the fees paid for the leases for these projects were so high that the projects would not be economically viable in the first place. > I’m not sure what I need to cite but logically when you’ve paid 1B for a lease up front, you’ll want to recoup that through the money you get paid for the electricity you generate. I agree. This is why I take issue with your initial claim. ~6.6tw (aggregate for the 3 sites) -> for $30b (middle range to develop) 1 TWh/year = 1,000,000 MWh/year. That works out to roughly $4.5k of initial capital per MW, initially. Based on a realized electricity price on the eastern seaboard, let's say $100m/tw/yr in profit - roughly $100 per mw/hour, after subsidy, operational cost and based (very conservatively) on a fixed midrange electricity demand. After 4500 hours (just over 6 months of operation) you're in the black. All that being said, if the books were cooked or construction was stalled, there could be outside incentives, but this is incidental to saying something akin to "it's unprofitable on paper" when the math does not bear this out.

by gehsty 2mo ago

Supermancho 2mo ago

> the fees paid for the leases for these projects were so high that the projects would not be economically viable in the first place. Can you explain where you got your information from? * The leases were already paid for (in total) in 2022-2023 for $1bn. * The expected output would have been 7gigawatts annually, which is a 5-7x return per year on paper. * The sale of the lease is due to a regulatory blockade, not a traditional cost benefit analysis.

gehsty 2mo ago
I’m not sure what I need to cite but logically when you’ve paid 1B for a lease up front, you’ll want to recoup that through the money you get paid for the electricity you generate. The project accounting probably includes a return on that similar to CAPEX (could be as high as 10%), so its impact grows every year as well. My feeling is that these projects would require offtake costs so high to be viable that they would not be appealing to the states that awarded the leases. The blockade from trump is a very appealing exit ramp for projects that are dead in the water. You can see in Germany / UK projects awarded with high lease costs failing (Mona already went pop in uk, I imagine any r4 lease not awarded cfd in AR8 will be returned, Total not moving forward with German portfolio…) I’ve worked on debt financed offshore wind projects for the last decade, the whole project viability hinges on devex/capex balanced against offtake and resource.
- Supermancho 2mo ago
  > the fees paid for the leases for these projects were so high that the projects would not be economically viable in the first place. > I’m not sure what I need to cite but logically when you’ve paid 1B for a lease up front, you’ll want to recoup that through the money you get paid for the electricity you generate. I agree. This is why I take issue with your initial claim. ~6.6tw (aggregate for the 3 sites) -> for $30b (middle range to develop) 1 TWh/year = 1,000,000 MWh/year. That works out to roughly $4.5k of initial capital per MW, initially. Based on a realized electricity price on the eastern seaboard, let's say $100m/tw/yr in profit - roughly $100 per mw/hour, after subsidy, operational cost and based (very conservatively) on a fixed midrange electricity demand. After 4500 hours (just over 6 months of operation) you're in the black. All that being said, if the books were cooked or construction was stalled, there could be outside incentives, but this is incidental to saying something akin to "it's unprofitable on paper" when the math does not bear this out.