Windfall profits for offshore wind

It has been an interesting year for Ormonde, a small offshore windfarm in the Irish Sea, just off Barrow-in-Furness. The chief excitement was that during last summer, replacement blades being installed on one of its machines fell into the sea. It was lucky that there were no injuries as a result.

But 2021 was also interesting because of all the ups and downs in the wind sector: a wind drought lasting for much of the year, and the dramatic surge in market prices for electricity in the autumn. Ormonde is the first offshore unit to report financial results covering those events, so I was keen to see how it has performed.

The net effect is that the windfarm is sitting very pretty indeed. While its output was down around a third (!), its average selling price tripled, from £30 to £99/MWh(!), so its sales income doubled to £34 million. Of course, the surge in market prices only really applied to the final four months of the year, so those figures suggest that the windfarm is currently making over £200/MWh. Which is good going against the £30 they averaged in 2020.

And to make their year even better, on top of that, they have their Renewables Obligations subsidy. Of course, that is based on the number of megawatt hours they produce, so that revenue stream is down sharply, but overall they earned £75 million on their 350,000 MWh of output, so overall that’s £214/MWh. My estimate of Ormonde’s levelised cost is up slightly, at £154/MWh.

Moreover, you can see that they are going to make an obscene amount of money in 2022, assuming output returns to normal and market prices remain high. Of course, the latter assumption is questionable, given that UK wholesale gas prices have fallen away dramatically, as pipelines struggle to deliver all the LNG that is arriving in the UK to where it is needed (mostly in the EU). However, this is expected to be temporary relief only, after which market prices should return to their previous highs, other things being equal.

That being the case, it is not inconceivable that Ormonde’s sales will hit £100 million in 2022, with £50 million of subsidy on top. That would be around £287/MWh. And because a windfarm’s costs are virtually all fixed, all that extra revenue flows right through to the bottom line. That means operating profits rising from the £13 million that Ormonde has averaged each year in its ten-year life, to perhaps £85 million next year. Quite good for a small windfarm with net assets of £167 million. Yes, they could earn the build cost of the windfarm back in just 2-3 years!

A windfall indeed.