Modeling Offshore Turbine Installation Vessel Dayrates in the U.S.

Abstract

The cost to install the foundation and turbines at offshore wind farms depends upon the duration of the operation and the vessel dayrate. In 2012, the market for offshore wind installation vessels is small and located exclusively in Europe with pricing mechanisms that are not transparent. The cost to a U.S. developer to lease an installation vessel is subject to a large degree of uncertainty and will be impacted by supply and demand conditions, willingness to pay, and regulatory requirements. The purpose of this chapter is to estimate dayrate ranges for U.S. offshore operations. Three model frameworks are developed using a capital cost model, a leasing strategy, and a developer-owned vessel strategy. Liftboat dayrates are expected to range between 12,500 and 75,000 $/d, jackup barges 25,000 and 150,000 $/d, and self-propelled installation vessels from 60,000 to 300,000 $/d. Mobilization costs are estimated and parameterized to estimate total costs by vessel type and mobilization distance.

Appendices

Appendix A. Leasing Dayrates

Dayrates associated with a vessel lease (D _L ) are composed of three factors: the daily finance costs (F _d ), the daily operating costs (O) and the daily ROI (R _d ):

$$ D_{L} = F_{d} + O + R_{d} $$

(7.6)

The daily finance costs are composed of the daily principal and interest payment to the lender plus the daily proportion of the down payment. Over the course of a term loan, the monthly interest payment declines with the declining principal; therefore the finance costs could be determined by either the average interest payment or the specific interest payment. For our purposes, the average interest payment is sufficient and simplifies the equations. In this case, the average monthly principal and interest payment (A) is the first payment plus the last payment divided by two:

$$ A = \frac{{\left[ {\frac{SP}{12T} + \frac{I}{12}SP} \right] + \left[ {\frac{SP}{12T} + \frac{I}{12}\left( \frac{SP}{12T} \right)} \right]}}{2} $$

(7.7)

where S is the total ship cost, P is the proportion financed, T is the term of the loan and I is the interest rate. In Eq. (7.7), the two terms in square brackets in the numerator are the first and last payments, respectively. Within each bracketed term, the first term (SP/12T) is the monthly principal payment, while the second term is the monthly interest payment. The non-financed portion (N) of the capital costs are:

$$ N = S - SP $$

(7.8)

The daily capital costs (F _d ) are then:

$$ F_{d} = \frac{A}{30.4} + \frac{N}{Y365} $$

(7.9)

where Y equals the life of the vessel in years (alternatively, T could be used instead of Y). To account for unutilized days, the daily finance costs can be divided by the expected utilization rate, U _e .

The operating costs, O, are derived from annual operating costs divided by utilized days and therefore already account for unutilized periods.

The daily ROI (R _d ) is the total investment (S) times the annual ROI (R _A ) divided by 365:

$$ R_{d} = \frac{{SR_{A} }}{365} $$

(7.10)

R _d may also be divided by the expected utilization rate U _e .

The total dayrate is thus given by:

$$ D_{L} = \frac{{\left[ {\frac{SP}{12T} + \frac{I}{12}SP} \right] + \left[ {\frac{SP}{12T} + \frac{I}{12}\left( \frac{SP}{12T} \right)} \right]}}{{60.8*U_{e} }} +\frac{N}{{\text{Y}365U_{e} }} + O + \frac{{SR_{A} }}{{365U_{e} }} $$

(7.11)

Appendix B. Newbuilding Dayrate

The dayrate for newbuilding is derived differently from the dayrate for leasing. For newbuilding, the daily cost (D _N ) to the developer is the total financed cost (F _T ) divided by the duration of the project (L) in years plus the daily operating expense.

$$ D_{N} = \frac{{F_{T} }}{L365} + O $$

(7.12)

This gives the vessel no value after completion of the project; to give value to the vessel we take the total cost of the project minus the total net income (G) from the vessel after the project, and divide by the duration of the project:

$$ D_{N} = \frac{{F_{T} + O365L - G}}{L365} $$

(7.13)

In this case, G may be either a lump sum value accrued from the sale of the vessel (G _S ), or it may be revenue generated from the future lease of the vessel (G _L ).

F _T is given by the total vessel cost plus the interest paid where the total interest paid is calculated as the average of the first and last interest payments times the total number of interest payments:

$$ F_{T} = S + T12*\left[ {\frac{{\frac{SPI}{12} + \left( \frac{SP}{T12} \right)\frac{I}{12}}}{2}} \right] $$

(7.14)

which simplifies to:

$$ F_{T} = S + \frac{SPI}{2}\left( {T + \frac{1}{12}} \right) $$

(7.15)

Assuming the vessel is leased, the total vessel net income following use in the initial wind farm (G _L ) is a function of the dayrate (not including operating costs), and the remaining life of the vessel:

$$ G_{L} = 365\left( {Y - L} \right)U_{e} \left( {D_{L} - O} \right) $$

(7.16)

where Y equals the total expected life of the vessel, in years. The dayrate, D _L , is given in Eq. (7.11) and represents the net income for a similar vessel. Combining the equations and simplifying gives a total dayrate for a newbuilt vessel to be leased after initial use (D _NL ) of:

$$ D_{NL} = \frac{1}{L365}\left( \begin{gathered} S + \frac{SPI}{2}\left( {T + \frac{1}{12}} \right) + O365L - \\ \left[ {365\left( {Y - L} \right)*\left( \begin{gathered} \hfill \frac{{\left( {\frac{SP}{12T} + \frac{I}{12}SP} \right) + \left( {\frac{SP}{12T} + \frac{I}{12}\left( \frac{SP}{12T} \right)} \right)}}{60.8} \\ \hfill + \frac{N}{Y365} + \frac{{SR_{A} }}{365} \\ \end{gathered} \right)} \right] \\ \end{gathered} \right) $$

(7.17)

In Eq. (7.17), D _NL is negative for many plausible combinations of parameters which suggests that future earnings offset the costs of installation. However, a negative dayrate is uninformative for the purpose of cost estimation. Further, Eq. (7.17) assumes that the expected utilization rate equals the actual utilization rate and that vessel supply and demand are in equilibrium over the life of the vessel so that dayrates are well modeled by D _L . If supply and demand are not in equilibrium, D _L will be a poor estimator of the real dayrate.

Conversely, the vessel may be sold at the conclusion of the project, reducing future risk to the developer. The total revenue from the sale (G _S ) is a function of the depreciation rate and the length of the project. Assuming that the vessel depreciates constantly over the vessel life (Y):

$$ G_{S} = S*\left( {\frac{Y - L}{Y}} \right) $$

(7.18)

This gives a dayrate for a newbuilt vessel sold after completion of the project of:

$$ D_{NS} = \frac{{S + \frac{SPI}{2}\left( {T + \frac{1}{12}} \right) + O356L - S\left( {\frac{Y - L}{Y}} \right)}}{365L} $$

(7.19)

However, it may be more reasonable to assume that when the vessel is sold the loan would be paid off, with no additional interest accruing. In this case, F _T is not a function of the total interest paid over the life of the loan, but the interest paid up until year L. In this case, we can determine the average interest payment as the first interest payment plus the interest payment at time L, divided by two. We then multiply the average interest payment by the number of interest payments made.

$$ F_{T} = S + L \cdot 12\left( {\frac{{\tfrac{SPI}{12} + [SP - L12\left( {\tfrac{SP}{12T}} \right)] \cdot \tfrac{I}{12}}}{2}} \right) $$

(7.20)

This gives a total D _NS of:

$$ D_{NS} = \frac{{S + L \cdot 12\left( {\frac{{\tfrac{SPI}{12} + [SP - L12\left( {\tfrac{SP}{12T}} \right)] \cdot \tfrac{I}{12}}}{2}} \right) + O356L - S\left( {\frac{Y - L}{Y}} \right)}}{365L} $$

(7.21)

We consider this to be the most useful equation for the costs associated with a newbuilt vessel.