The legal and economic impacts of implementing a joint feed-in premium support scheme on the development of an offshore grid

Abstract

Offshore wind projects require large investments. Therefore, they currently need governmental support to become competitive and economically attractive for investors. There is a general consensus that a feed-in premium scheme would be most adequate to support offshore wind generation in the North Sea. With increasing distance from shore, scarcity of adequate cable routes, and an increasing need to reduce cost, cross-border projects between two or more North Sea states come into discussion. After discussing different support schemes, we argue that existing nationally oriented instruments have to be amended to become applicable to cross-border projects envisioned in the North Sea. In order to support our arguments quantitatively, we introduce a novel optimization framework that is able to account for the impact of implementing different types of feed-in premium based wind supporting schemes (generation-based and capacity-based) on the development of the offshore grid in the North Sea region. For a given level of support for wind development, an optimal plan includes the grid and offshore wind capacities. The transmission capacities are set in such a way that the congestion revenue collected throughout the life time of the project pays off the investment cost of building the grid. At the same time, the remuneration of the offshore wind farms pays off the unsubsidized initial investment cost of building the wind farms, provided that the premium level is selected adequately. Numerical simulation results are interpreted in economic terms and appraise the quality and effectiveness of the proposed approach. The paper will end with an outlook of how such a joint support scheme might be implemented.