Decommissioning and the lifecycle of an offshore wind farm: how much to set aside and how to avoid underestimation
When an offshore wind farm is commissioned, decommissioning feels like a distant prospect: it will happen in twenty or twenty-five years, once the turbines have finished their service life. However, the financial question arises from the very first year. How much should be provisioned for this future obligation, and how can you ensure it isn't undervalued?
A poorly calibrated provision carries a long-term cost, in the form of accumulating discounting charges and estimate revisions that weigh on the financial statements.
This article connects three dimensions: the technical cost of decommissioning, its accounting treatment, and the reasons why it is frequently underestimated.
Life cycle of an offshore wind farm: from commissioning to the end of operations
The end of operations must be planned from the moment the project's financial structure is designed. The chosen time horizon dictates the entire framework for the decommissioning provision.
What is the actual lifespan of an offshore wind farm?
The lifespan of an offshore wind farm is generally between twenty and twenty-five years. Conditions at sea are harsher than on land: salt air, swell, fatigue of foundations and blades, and the aging of power electronics. The actual duration achieved often leans toward the lower end of that range. It is this long and uncertain horizon that makes the task delicate: you must estimate today a cost that will only materialize two decades later.
What triggers the end of life: technical, economic, or contractual factors
Three factors can hasten the end of operations. The technical factor, when maintenance becomes too heavy or availability drops. The economic factor, when operating costs exceed revenue, particularly after the power purchase agreement expires. The contractual factor, when the concession or land-use authorization reaches its term. The decision to decommission is therefore as much financial as it is technical, placing it firmly within the remit of both the project manager and the CFO.
How much does it cost to decommission an offshore wind farm?
This is the central question, and the hardest to quantify with certainty. The offshore industry is young: few offshore farms have been decommissioned, and the published feedback largely concerns onshore wind, where costs cannot be transposed to the sea.
Decommissioning cost per megawatt and as a percentage of CAPEX
Estimates are expressed either as a cost per installed megawatt or as a percentage of the initial investment. They vary significantly from one study to another, depending on water depth, foundation type, distance from the coast, and vessel availability. Relying on onshore benchmarks inevitably leads to underestimating the obligation.
The decommissioning cost breakdown: where does the money really go?
Beyond the total amount, the cost distribution sheds light on key trade-offs. Studies converge: the bulk of the expenditure is concentrated on turbine removal, foundation extraction, and maritime logistics—specifically the mobilization of specialized vessels. Cables account for a small portion of the bill. Establishing this cost breakdown item by item is the first step toward a defensible provision, as it highlights the areas most exposed to cost drift. You can find more information in this article: Offshore wind vessel standby fees: why CFOs discover them too late.
Dismantling, cables, and scour protection: what is removed and what is left behind
Decommissioning does not always mean removing everything. While turbines and masts are dismantled, foundations are sometimes cut below the seabed level rather than fully extracted. Scour protection (scour protection) and certain cables may be left in place, with regulatory approval, to minimize the impact on marine habitats that have formed around the structures. Every decision between full removal and partial abandonment directly affects the final cost and regulatory obligations. This must be documented for provisioning purposes.
Decommissioning provision: provision, asset, depreciation
This is where the accounting aspect comes in, which is often missing from technical content. Accounting recognition follows a specific principle: the expense is built up during the operational phase, not when the site is closed. It is organized through three mechanisms: the provision, the offsetting asset, and its depreciation.
Liability provision and decommissioning asset: the dual accounting movement
Accounting recognition is based on a dual movement. The company records a provision as a liability equal to the estimated future cost and, in return, recognizes a decommissioning asset, which is integrated into the value of the installation. This asset is then depreciated over the life of the wind farm. The expense is thus spread over the entire operating period, rather than hitting the decommissioning year all at once.
Discounting and unwinding: why the provision grows every year
Since the obligation will be fulfilled in twenty years or more, the provision is recorded at its present value after discounting future costs. Each year brings the deadline closer and mechanically increases the value of the provision: this is the unwinding of the discount, recorded as a financial expense. This provision is therefore not fixed; it grows over time. The choice of discount rate has a significant impact on the annual expense.
IAS 37, ARO, and the French framework: a common principle, two standards
Readers navigating between different standards will find the same logic under different names. Under international standards, the obligation falls under IAS 37, and the change in the discounted provision under IFRIC 1; the Anglo-Saxon world refers to an asset retirement obligation (ARO). In France, tax doctrine and the chart of accounts govern the provision for decommissioning costs and the offsetting asset. While the terminology differs, the mechanism is the same: recognize early, discount, depreciate, and periodically revise.
Financial guarantees and the wind energy regulatory framework: who pays in the event of default?
The accounting provision is not the only mechanism involved. A separate regulatory obligation aims to ensure that funds will be available when the time comes, even if the operator is no longer in business.
France: onshore guarantees and specific obligations for offshore projects
For onshore wind farms subject to authorization under classified installations regulations, Annex I of the Order of August 26, 2011, as amended by the Order of July 11, 2023, sets the initial guarantee amount at €75,000 per wind turbine up to 2 MW. Beyond 2 MW, the formula is €75,000 + €25,000 × (P − 2), where P is the unit power in megawatts. The amount is updated before the start of commercial operation and then every five years, in accordance with Article 31 and Annex II. For an offshore wind project, it is necessary to examine the decommissioning and guarantee obligations set out in the authorizations, the concession, and the specifications applicable to the project. The onshore formula does not apply and should not be used as a reference for cost estimation. Source: consolidated Order of August 26, 2011, Article 31 and Annex I.
Accounting provision or financial guarantee: do not confuse the two
These two mechanisms serve different purposes, and confusing them weakens management. Accounting provisions smooth expenses in the financial statements and reflect an economic estimate. Financial guarantees secure funds for public authorities according to the applicable framework: a regulatory formula for onshore projects, or the concession specifications for offshore projects. The two amounts can differ significantly. A guarantee calibrated to the minimum requirement does not mean the economic provision is sufficient.
Under-provisioned decommissioning: the risk of transfer to the taxpayer
When neither the provision nor the guarantee covers the actual cost, the risk shifts to the community. This issue must be addressed with caution and based on facts, but it highlights the reputation and liability stakes involved in accurate cost estimation.
Repowering, life extension, or decommissioning: the end-of-life decision
Decommissioning is only one of several possible outcomes. Understanding the alternatives helps in assessing the actual probability of decommissioning, and therefore the appropriate level of provisioning.
Life extension, repowering, decommissioning: the three end-of-life scenarios
Operators have three paths available. Life extension (life extension) involves operating existing equipment beyond its initial horizon, following requalification. Repowering involves replacing components, either partially or entirely, to install more powerful turbines. Decommissioning (decommissioning) involves removing the installations and restoring the site. Each has its own cost profile and authorization framework.
Why repowering remains limited in offshore wind
At sea, full repowering faces significant constraints: new permits, foundations sized for the original turbines, and costly maritime logistics. Life extension is often preferred as long as it remains profitable, but decommissioning remains the baseline scenario. For provisioning purposes, it is better to consider it the scenario to be funded, rather than banking on uncertain repowering.
Recycling an offshore wind farm: what happens to decommissioned components?
The net cost of decommissioning also depends on the value of recovered materials and the cost of processing difficult components.
Steel, copper, concrete: the recoverable portion and residual value
A large portion of the materials in an offshore wind farm is recoverable. The steel from masts and foundations, the copper from cables, and most metals have established recycling channels. This residual value is deducted from the gross cost and must be integrated into the estimate with caution, as metal prices fluctuate over a twenty-year horizon.
Recycling composite blades: the bottleneck and emerging solutions
Blades are the main sticking point. Made of composite materials combining fibers and resin, they resist conventional recycling. New channels are emerging, such as shredding, use in cement plants, or pyrolysis, and the industry has committed to no longer sending blades to landfills. This treatment comes at a cost, which impacts the net bill and remains subject to changes in technology and regulations.
Underestimating decommissioning costs: key causes to be aware of
This is the core issue for any cost controller or financial controller. The causes of underestimation are identifiable and therefore predictable.
Inflation and discount rate adjustments: two drivers of provision drift
A provision calculated at commissioning covers costs that will be incurred twenty years later. Over such a period, inflation significantly alters the final amount, and the chosen discount rate causes the present value of the provision to fluctuate. Without periodic review of these assumptions, the gap widens silently year after year.
Technical uncertainty and limited operational feedback
Few offshore projects have been fully completed, cost databases are thin, and the availability of specialized vessels, already tight for installation, will be equally so for decommissioning. This uncertainty is not due to a lack of analysis, but to a structural lack of benchmarks. It justifies a prudent margin rather than an optimistic estimate. You can find more information in this article: Why large-scale energy project cost estimates go off track and how to improve costing reliability.
First offshore decommissioning projects: lessons from Vindeby and Blyth
The few real-world cases are invaluable. Vindeby, the world’s first offshore wind farm, commissioned in Denmark in 1991, was decommissioned in 2017 after about twenty-five years of operation. The Blyth wind farm in the UK was decommissioned in the late 2010s. These experiences show that initial assumptions often clash with site realities that are more complex than anticipated.
Building a defensible decommissioning provision: the methodology
A solid provision cannot be improvised. It relies on a few simple but demanding principles: establishing a detailed, line-item cost structure rather than a flat fee, distinguishing between accounting provisions and regulatory guarantees, choosing and regularly reviewing a justified discount rate, integrating the residual value of materials with caution, and aligning assumptions with available operational feedback. It is work that sits at the intersection of engineering, compliance, and project finance.
Renergy strengthens the execution control of major projects through two complementary levers: the deployment of immediately operational industry experts and the training of internal teams.
If you are facing these trade-offs, you can book an appointment with a Renergy consultant to discuss them. The conversation is confidential and aims to identify solutions tailored to your specific exposure.
To learn more about these mechanisms, discover the five pitfalls to avoid when managing the finances of offshore wind projects.
