Are offshore wind business cases too optimistic?

Have offshore wind business cases become overly optimistic?

Is that really the problem?

Or are business cases simply being asked to predict an increasingly uncertain future?

The reality is probably somewhere in the middle.

Over the last few years, the industry has faced a series of shocks that few would have predicted. Inflation has surged, interest rates have risen sharply, supply chains are under unprecedented pressure and financing costs have increased. As a result, assumptions that once appeared entirely reasonable suddenly look far less robust.

At the same time, it would be difficult to argue that every challenged project has simply fallen victim to bad luck.

During a period when developers and investors were competing aggressively for positions in emerging markets, optimism inevitably found its way into some business cases. In many cases, this reflected a genuine belief in future cost reductions, technology improvements and market growth.

However, I think the more interesting question is not whether assumptions are optimistic or pessimistic.

It's the environment in which those assumptions are now being made.

Offshore wind business cases are being asked to look further into the future than ever before.

Development programmes continue to lengthen. The period between securing a CfD and reaching COD has increased. Grid constraints, transmission charging uncertainty, evolving yield assumptions and limited supply chain price certainty all make forecasting project economics years in advance increasingly difficult.

And these risks rarely occur in isolation:

Grid delays can increase financing costs.

A longer programme can increase exposure to inflation.

Changes in supply chain availability can affect both CAPEX and schedule.

Individually, these issues may be manageable. Combined, they can fundamentally alter project economics.

That is why simply applying more conservative assumptions across the board is unlikely to be the answer. Many otherwise viable projects would struggle to proceed if every uncertainty was assumed to crystallise in the worst possible way.

The question is not whether assumptions should be optimistic or pessimistic. The question is whether business cases are sufficiently robust to withstand a wider range of outcomes than we would have considered realistic only a few years ago.

And if uncertainty itself has become one of the industry's biggest project risks, how should developers price that uncertainty into CfD bids and investment decisions?

I'll share some thoughts on that in a future post.