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Determining the Economic Feasibility of Offshore Wind Farms

Matt Ball on July 16, 2012 - in Analysis, Corporate, Energy

Palisade’s risk analysis software, @RISK, has been selected by the Energy Research Centre of the Netherlands, ECN (www.ecn.nl/), to determine whether offshore wind farms are financially viable from an operation and maintenance perspective.

A key issue for potential operators is that offshore operations face more adverse weather conditions, such as higher wind speeds and the increased risk of being struck by lightning, than their onshore counterparts.  In addition, a failed offshore turbine may take several months to repair, rather than a few days.  The financial implications of repair and downtime must therefore be factored in to any calculations.

ECN works with its clients doing ‘what if’ scenarios to determine the most cost-effective method of maintaining a wind farm. Having selected the option that works best, ECN then undertakes probabilistic analysis with an @RISK model to determine the cost uncertainties of this method.

A key input to the @RISK model is the failure frequencies of the turbines, based on the reliability of the components.  Field data is generally used to determine this, but the nascent nature of the industry means there is a shortage of historical information available. Even when data is available, the failure rates used in the cost modelling tool are subject to uncertainties. These include the prices of crane ships and access vessels (which may vary per season and even from day-to-day), the cost of spare parts, and the electricity price, as well as the lead times of spares and vessels.

However, feeding the input data into the @RISK model results in a distribution that determines the uncertainty associated with the downtime and maintenance costs of an offshore wind farm.  This enables a project developer to make an informed decision, firstly as to whether to proceed with the project and then, if this is affirmative, the best way to do so.  Measuring the uncertainty also helps to make the project more viable in terms of financing – banks don’t like risk, in particular when it is unknown.

“Risk and uncertainty are an inherent part of any business project, but they are increased further in ‘new’ industries such as alternative energy,” explains Luc Rademakers, senior manager, wind energy systems development at ECN.  “However, the @RISK model can handle vast amounts of data and present it in a way that is easy to understand, thereby making it straightforward to quantify the risk associated with a venture. Wind farm developers – and their potential investors – can therefore make informed decisions about whether an offshore operation will offer a good return on investment.”

About Palisade
Palisade Corporation is a software developer that produces decision support tools for professionals in many lines of work. The company was founded in 1984, and at present more than 400,000 people use Palisade’s software in fields that range from finance to oil and mineral exploration, real estate to heavy manufacturing, and pharmaceuticals to aerospace. Its software is used by many Fortune 500 companies, including Shell Oil, Procter & Gamble, ExxonMobil, Chase Manhattan, and by prominent economic and financial consultants.

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