UK fears high cost to decommission offshore windfarms

LONDON, UK, August 22, 2007. The cost to decommission all the offshore windfarms and wave / tidal devices built in Britain by 2020 could reach £585 million.

The UK government is closing a consultation on changes to the decommissioning regimes for offshore renewable energy installations, as well as oil and gas installations, with a goal to changing the statutory decommissioning regimes for installations and related electric lines. Main areas covered by the consultation include the safeguarding of decommissioning funds in the event of insolvency and widening the category of people subject to decommissioning in order to bring offshore renewables into line with current provisions for oil and gas companies.

“Offshore energy installations have an important role in supplying the nation's future energy needs, meeting our objectives for security of supply and in the case of offshore renewables helping reduce GHG emissions,” explains ‘Decommissioning Offshore Energy Installations.’ The consultation was launched in June and concludes on September 13, after which a government response will be issued.

Amendments will apply to all territorial waters and the UK Continental Shelf, while provisions for decommissioning of offshore renewable energy facilities will apply to territorial waters in or adjacent to England, Scotland and Wales and to waters in the UK Renewable Energy Zone.

“Exploitation of the offshore energy resource also brings with it international obligations to decommission installations at the end of their life in order to ensure safety of navigation, whilst taking account of fishing and protection of the marine environment,” it continues. “Both the oil and gas and offshore renewable energy industries therefore operate under statutory decommissioning regimes: the Petroleum Act 1998 for oil and gas installations and the Energy Act 2004 for offshore wind, wave and tidal installations.”

Last year, the industry department commissioned Climate Change Capital to identify means by which government could protect against default on decommissioning liabilities, without unnecessarily inhibiting the development of the offshore renewable energy industry.

“Significant uncertainty remains over decommissioning costs, given the lack of experience and 20 year plus time horizon before actual decommissioning, during which market conditions, technology and environmental knowledge may all change,” the report concludes. “Based on industry figures, CCC estimated that, for all proposed Round Two offshore wind projects, the total level of decommissioning liabilities would be approaching £300 million (based on 7.2 GW capacity and estimated £40,000/MW decommissioning costs).”

“If all actual and proposed Round One projects were included, total costs would be in the order of £360 million; industry estimates for the cost of decommissioning wave and tidal devices varied between £25-to-£100,000/MW depending on the techniques involved,” it continues. “Based on these costs, CCC calculated that if 8.4 GW of offshore windfarms and 2.5 GW of wave/tidal devices were built by 2020, the total decommissioning liability would be between £400-to-£585 million.”

“Whilst the offshore renewable sector is at an early stage of development, and the eventual need to decommission installations is likely to lie a long way into the future, the oil and gas sector is a mature one where decommissioning of installations has already begun,” the report continues. “First-hand experience of offshore decommissioning in the oil and gas sector, and experience in consulting on and beginning to implement the recently published guidance for offshore renewable decommissioning, has highlighted areas where legislative changes would be desirable to ensure the effectiveness of the statutory schemes, in particular to minimise the risk of liabilities falling to the exchequer in the event of default by an offshore operator.”

“The government’s objective, taking account of its international obligations, is to ensure that (renewable energy) installations are decommissioned appropriately,” it adds. “Learning from oil and gas experience of the Petroleum Act, we have been keen to ensure that developers take account of their decommissioning liabilities at the beginning of their projects and make adequate provision to ensure that sufficient funds will be available to meet their liabilities.”

Last December, the government said it would not be appropriate for it to bear the liabilities associated with decommissioning of offshore renewable energy installations, and nor to accept the risk that developers may default on their liabilities. However, the government accepted that it may be appropriate for it to take on some of the risk associated with potential default.

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