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Modeling offshore wind installation vessel day-rates in the United States

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Abstract

Marine vessels used to install the foundations and turbines at offshore wind farms are currently a small and specialized fleet located exclusively in Europe where significant offshore wind development has occurred over the last decade. The costs to a US developer to lease an installation vessel are subject to a large degree of uncertainty because of supply and demand conditions, willingness to pay and regulatory requirements. The purpose of this article is to estimate vessel day-rates for US offshore wind installation between 2012–2017. Three model frameworks are developed using a capital cost model, a leasing strategy and a developer-owned vessel strategy. Transport costs are parameterized to create estimates of total costs by vessel type and mobilization distance. Day-rates for liftboats, jack-up barges and self-propelled installation vessels are expected to range between 12 500 and 75 000 US$/day, 25 000 and 150 000 $/day and 60 000 and 300 000 $/day, respectively, over the time period considered.

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Notes

  1. Effective day-rates were computed by dividing the value of the contract by the number of days of operation.

  2. To determine the average daily cost, we averaged the first and last monthly payments using a standard fixed principal declining interest method and divided by 30. We then added a fixed payment to recover the non-financed portion of the investment.

  3. EBITDA is earnings before interest, taxes, depreciation and amortization and is a commonly used measure of financial performance; it is particularly useful for firms with expensive long-lived assets such as ships.

  4. For example, Superior Energy Services released information on newbuild and day-rate costs for its large (265 class) liftboats. Superior built two vessels in 2009 for a cost of approximately $25 million and leased these vessels for approximately 37 500 $/day. This gives a day-rate of approximately 0.15 per cent of newbuild cost (Superior Energy Services, 2010). In its 2009 financial statement, Tidewater provided information on the newbuild cost of domestic and international deepwater platform supply vessels. For domestic vessels, the day-rate was 0.075 per cent of newbuild costs, whereas for international vessels the day-rate was 0.1 per cent of newbuild costs (Tidewater, 2009).

  5. For dimensional analysis, set 0.011DV t 2 equal to tug hp and as fuel use is 1 gal per hp per day, G can be considered as $/hp·day.

  6. Heavy lift transport was used for the transfer of the Titan I and Titan II from the construction shipyard in Louisiana to the United Kingdom.

  7. Depending on the circumstances of the tow, wet tows may have insurance rates above 3 per cent; however, this produces exceptionally high costs making wet tows extremely costly. If insurance premiums are above 3 per cent there is likely to be no case in which they are favored and we therefore exclude this possibility from the analysis.

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Acknowledgements

This article was prepared with support from the US Department of the Interior, Bureau of Ocean Energy Management, Regulation and Enforcement, and has not been technically reviewed by the BOEMRE. The opinions, findings, conclusions or recommendations expressed in this article are those of the authors, and do not necessarily reflect the views of the BOEMRE.

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Appendix

Appendix

Theoretical Model Development

Leasing day-rates

Day-rates associated with a vessel lease (D L ) are composed of three factors: the daily finance costs (F d ), the daily operating costs (O) and the daily ROI (R d ):

The daily finance costs are composed of the daily principal and interest payment to the lender plus the daily proportion of the down payment. Over the course of a term loan, the monthly interest payment declines with the declining principal; therefore, the finance costs could be determined by either the average interest payment or the specific interest payment. For our purposes, the average interest payment is sufficient and simplifies the equations. In this case, the average monthly principal and interest payment (A) is the first payment plus the last payment divided by two:

where S is the total ship cost, P is the proportion financed, T is the term of the loan and I is the interest rate. In Equation (A.2), the two terms in square brackets in the numerator are the first and last payments, respectively. Within each bracketed term, the first term (SP/12T) is the monthly principal payment, whereas the second term is the monthly interest payment. The non-financed portion (N) of the capital costs are then:

The daily capital costs (F d ) are then:

where Y equals the life of the vessel in years (alternatively, T could be used instead of Y). To account for unutilized days, the daily finance costs can be divided by the expected utilization rate, U e .

 The operating costs, O, are derived from annual operating costs divided by utilized days and therefore already account for unutilized periods.

The daily ROI (R d ) is the total investment (S) times the annual ROI (R A ) divided by 365:

R d may also be divided by the expected utilization rate U e .

The total day-rate is thus given by:

Newbuilding day-rate

The day-rate for newbuilding is derived differently from the day-rate for leasing. For newbuilding, the daily cost (D N ) to the developer is the total financed cost (F T ) divided by the duration of the project (L) in years plus the daily operating expense.

This gives the vessel no value after completion of the project; to give value to the vessel, we take the total cost of the project minus the total net income (G) from the vessel after the project, and divide by the duration of the project:

In this case, G may be either a lump sum value accrued from the sale of the vessel (G S ), or it may be revenue generated from the future lease of the vessel (G L ).

F T is given by the total vessel cost plus the interest paid where the total interest paid is calculated as the average of the first and last interest payments times the total number of interest payments:

which simplifies to:

Assuming the vessel is leased, the total vessel net income following use in the initial wind farm (G L ) is a function of the day-rate (not including operating costs), and the remaining life of the vessel:

where Y equals the total expected life of the vessel in years. The day-rate, D L , is given in Equation (A.6) and represents the net income for a similar vessel. Combining the equations and simplifying gives a total day-rate for a newbuilt vessel to be leased after initial use (D NL ) of:

In Equation (A.11), D NL is negative for many plausible combinations of parameters. This suggests that future earnings offset the costs of installation. However, a negative day-rate is uninformative for the purpose of cost estimation. Further, Equation (A.11) assumes that the expected utilization rate equals the actual utilization rate and that vessel supply and demand are in equilibrium over the life of the vessel so that day-rates are well modeled by D L . If supply and demand are not in equilibrium, D L will be a poor estimator of the real day-rate.

Conversely, the vessel may be sold at the conclusion of the project, reducing future risk to the developer. The total revenue from the sale (G S ) is a function of the depreciation rate and the length of the project. Assuming that the vessel depreciates constantly over the course of the vessel life (Y):

This gives a day-rate for a newbuilt vessel sold after completion of the project of:

However, it may be more reasonable to assume that when the vessel is sold the loan would be paid off, with no additional interest accruing. In this case, F T is not a function of the total interest paid over the life of the loan, but the interest paid up until year L. In this case, we can determine the average interest payment as the first interest payment plus the interest payment at time L, divided by two. We then multiply the average interest payment by the number of interest payments made.

This gives a total D NS of:

We consider this to be the most useful equation for the costs associated with a newbuilt vessel.

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Kaiser, M., Snyder, B. Modeling offshore wind installation vessel day-rates in the United States. Marit Econ Logist 14, 220–248 (2012). https://doi.org/10.1057/mel.2012.5

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