Financial Analysis

According to the results shown previously for the Offsh2re Shetland project, we observe that green hydrogen is not yet competitive with HFO. Undoubtedly, substantial and targeted moves create an economically attractive 'green project' for the exploitation of wind energy and at the meanwhile the production of green hydrogen[11]. The volume of offshore wind and hydrogen production could be significantly increased through smart market planning and regulation, including the continuation of the pioneering banking scheme as well as 'green lending' to help the UK economy grow, protecting but also creating an environment with less emissions[12].

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               The United Kingdom has long been a laggard in green bond issuance, placing 12th in Climate Bonds annual 2020 estimates, behind the United States, China, and a number of European countries[12]. The government's plan to place the UK as a sustainable finance pioneer has been evident since last November, when Sunak called for a "new chapter for financial services," emphasising the importance of green finance[12]. In the run-up to hosting COP26, the international climate summit, in November, the United Kingdom is keen to establish itself as a green finance pioneer[12]. Six years since the Paris Climate Agreement, the burden on policymakers and corporations to achieve a zero-carbon future has never been greater[12].

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               Green bonds are an excellent solution to the increasing appetite in the financial world for investments that help ensure a zero-carbon future[13]. Our joint proposal for the Offsh2re Shetland project is supposed to have the potential to receive public support from the government and to be funded for assets[3]. Offsh2re Shetland according to the results studied, is fully capable of helping the business community, so it undoubtedly helps the United Kingdom to achieve its climate goals[13]. A monetary allocation from the government's green government bond strengthens the UK's position as a world leader in sustainable financing as well as supporting the economic recovery the country needs[13].

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               According to all the analyzes carried out, Offsh2re Shetland will undoubtedly create green jobs in the supply chain, including construction, storage and installation[14]. Such investments complement the government's contract renewable energy support system, the fourth round of which (to be held in late 2021), which aims to increase the capacity of renewable energy sources[13]. These 'green initiatives like Offsh2re Shetland' will promote the UK's position as a world leader in offshore wind energy and ensure that the industry is strong[14]. However, in the future we propose that part of the electricity generation will be channeled to the surrounding areas[14]. In this way, we reinforce the government's goal that offshore wind farms will power every home in the UK by 2030, in addition to acknowledging the hypothetical investment drive for Offsh2re Shetland to enter the Capacity Market[14],[15].

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               Offsh2re Shetland hypothetically claims a portion of the funds in the portfolio, which aims to accelerate the commercialization of low-carbon technologies, systems and business models in buildings and industry[13]. The "Green Project", with original and innovative techniques, stores long-lasting, first-class energy that will reduce the cost of pure zero, storing excessively low carbon energy for longer periods, coming from the development of offshore wind technology[14]. According to the published requirements of the United Kingdom which are necessary and the introduction in the investment 'green programs'[5]. Offsh2re Shetland has the potential to gain £4.8 million in government funds to pilot the production of green hydrogen – hydrogen produced by clean energy and an electrolyzer – and its use as a zero-emission fuel for heavy-duty vehicles[4]. This could fund up to 500 jobs, according to the Budget[14],[15].

               Offsh2re Shetland have the full potential according to the results, in theory to be able to ideally support the capacity market. They can meet the mechanism introduced by the government to ensure that electricity supply continues to meet demand, tackling the problem of instability for unpredictable renewable energy units being created[15]. Ensure that there is sufficient capacity to generate or manage load in the system to cope with moments of pressure on the network[15]. The Capacity Market's goal is to achieve long-term supply stability. Following the Government's thorough analysis of the energy sector, the Capacity Market was proposed[15]. The Capacity Market will coexist with the existing Energy Market, which will be funded by the Balancing Services Market[15]. Participants would be compensated on a per-MW basis for the power they provide to the industry[15]. This capability must be available as National Grid calls on providers at any point during the contract term[15].

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               Potential Capacity Market participants will bid on contracts four years before the delivery date in auctions[15]. Existing generators and demand-side responses will be given one-year capacity agreements at the clearing price if the auction is successful[14]. Longer-term (15-year) agreements are valid for new plant to enable investment in next-generation assets, while three-year agreements are available for refurbished plant[14]. During the distribution year, capacity providers will be paid annually at the auction clearing price for their agreed-upon obligation[14]. Offsh2re Shetland can be assumed that, according to the in-depth study of 'Aurora Energy Research Ltd', it has the ability to formulate scenarios where offshore wind capacity can meet the needs by the 2030s[15],[16]. If this analysis is adopted, it allows offshore wind to accumulate revenue, providing further capital cuts and Opex for offshore wind energy as technology[15],[16].

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               Because of the fierce rivalry that has pushed down offshore wind prices, owners and operators have been looking for ways to extract more profit from their properties. As a result, there has been a surge of interest in new income sources and ‘revenue-stacking' market models[16]. Finally, the increased focus on system integration costs has enabled the industry to create technologies that minimise the externalities of offshore wind[16]. Offshore wind developers and operators are working on a variety of options that use offshore wind as part of the solution to reduce system costs and maintain a balanced grid[6]. This adds to the impetus for the emergence of new modes of operation for offshore wind properties[16]. Offshore wind investment costs have dropped significantly in recent (CfD) auctions[16].

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               In 2015, the average clearance price for (CfD) Round 1 was about £117 per MWh. The average price had dropped to £62 per MWh in 2017, with clearing rates as low as £58 per MWh[6]. A variety of factors contributed to this drop, including increased turbine size, advancement in operation and servicing practises, streamlined supply chains, and improved financing structures[16]. This decrease in offshore wind prices in the UK market has been balanced by similarly remarkable cost declines in Europe[6],[17]. Orsted and EnBW submitted bids to construct offshore wind turbines in 2024/25[7]. Developers anticipate that 13-15 MW turbines will be available by the time these developments are completed in 5-7 years, resulting in considerable additional cost savings[16],[17].

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               Offsho2re Shetland hypothetically, if it takes advantage of the two policy tools analyzed by 'Aurora Energy Research Ltd', could unlock additional possibilities from the offshore wind[16]. To begin with, offering a zero-subsidy Contract for Difference (CfD): Stabilizing offshore wind sector sales by the government ensuring a per MWh premium at a cost that results in no net charges from or to the commodity over a 15-year term (a ‘zero-subsidy' (CfD)[16]. Second, allowing revenue stacking: lifting obstacles that currently prevent offshore wind from competing in the Capacity Market, Balancing Mechanism, and ancillary resources, thereby levelling the playing field and creating more technologically neutral and productive markets[16]. Both strategies, according to analysis, result in new, cost-effective, economically efficient offshore wind power on the GB grid[6].

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               On a subsidized basis, this ‘zero-subsidy' (CfD) will generate about the same income as the wholesale market for an offshore wind commodity for a 15-year term[16]. This encourages asset owners to discount bulk demand revenue at a cheaper cost by offloading more of the price and uncertainty burden to the government (and indirectly to consumers). In short, the government essentially de-risks wholesale merchant sales, lowering the cost of capital and allowing for further offshore wind growth[16]. Under this zero-subsidy proposal, it is expected that offshore wind will continue to successfully compete at their 15-year catch price in (CfD) auctions until the influence of offshore price cannibalization is such that the marginal offshore wind unit cannot recover its costs on an NPV basis[16]. Clarity about potential timings and volumes makes for more supply chain growth, which aids in more offshore Capex reductions[16].

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               Following the transition to zero-subsidy (CfDs), offshore wind projects may be rewarded for their commitment to supply protection, as determined by Equivalent Firm Capacity (EFC)[16]. National Grid and BEIS already conclude that onshore and offshore wind power has an EFC of about 20% when estimating the levels of new capacity to be procured in each year's Capacity Market[16]. Subsidy-free or zero-subsidy offshore wind will be permitted to compete in the Capacity Market under this plan, but offshore wind with current (CfDs) or Renewable Obligations would not[16].

Conclusion

There is optimism that the UK’s first green bonds would signal the start of an exciting green finance path. The goals of the UK’s green financing policies must be embedded on Offsh2re Shetland, orchestrated in accordance with international climate change targets. At all levels, the growth of Offsh2re Shetland has much to offer the UK economy, consumers, and communities. Offsh2re Shetland owners would need to fix the merchant factor of wind power projects in the long run. This highlights the significance of funding strategies that capture the nature of merchant risk and stabilise sales flows in these ventures[18]. The wind energy market in Europe is critical to the EU economy[18]. Wind energy now serves 15% of Europe’s energy demand[18],[20]. As discussed above, as renewable energy and storage deployment grow, the constraints that have driven power market architecture will shift, and new challenges, such as grid stability planning, will emerge[19],[20].  Many industry players would be producing as well as using energy, necessitating changes in market pricing, settlement, and legislation[19],[20]. The key is to keep the installed energy, price, and subsidy of offshore wind power balanced[19]. As the offshore wind power industry grows, price and subsidy become more critical than energy[20]. Capex savings are expected to be 25-30% compared to existing available wind turbine technology[16]. Opex cuts are expected to take a similar trajectory[16]. Assumes the contracted revenue is discounted at 8% nominal, unlevered, pre-tax, and merchant revenue is discounted at 13% nominal, unlevered, pre-tax[20]. Finally, the above creates a hypothetical patchwork that which delivers on plans to economy, that will bring a range of positive social benefits such as creating green collar jobs, skills and regional revitalisation[20].