The influence of seabed lease fees on offshore wind farm design

Abstract

Governments that control seabed generally extract fees from the offshore wind sector, often tying these fees to the characteristics of the proposed wind farms. These fees could change the optimal design of offshore wind farms, thereby affecting the long-term development of the industry. We employ microeconomic theory and incentive-response analysis to explain the effects of different types of fees on the optimal design and characteristics of offshore wind farms. We find that fees that are structured to be proportional to wind farm area, nameplate capacity, production, and revenue may influence the optimal design of a wind farm from a wind farm developer's perspective. Fees based on area, production, or revenue may result in less area used by developers. Fees based on capacity, production, or revenue may result in the choice of turbines with lower specific power, while fees based on production or revenue may additionally encourage the use of smaller turbines. All four fee types may encourage developers to use fewer turbines per wind farm. If designed intentionally, policymakers could use seabed lease fees to guide the wind farm designs toward more socioeconomically optimal outcomes, including less area used, reduced environmental impacts, or better grid integration.