To date, the business case for wind propulsion has been assessed on the same basis as that of energy efficiency technologies: a large upfront investment which must be recouped over a number of years through reduced fuel consumption and thus lower fuel bills. When based on a (relatively cheap) fossil fuel, it can take 5-10 years to earn back the initial capital expenditure. However, with the EU’s recently introduced maritime regulation and the IMO’s proposed Net Zero Framework, any commercial assessment of wind propulsion needs to be reframed.
A fuel standard—which sets an annual target for the emissions intensity of the energy used by a ship—is integral to both the EU and IMO policy frameworks. Both fuel standards recognise (either directly or indirectly) wind propulsion as a zero emission energy source. This means that, as well as reducing overall fuel consumption (which is likely to include increasing volumes of more expensive alternative lower emission fuels), wind propulsion systems can also contribute to the reduction in the average emissions intensity of a ship. The overall impact of wind propulsion depends on the compliance strategy adopted and the relative exposure to either or both of these regulatory regimes.
In this report, total cost of operation (TCO) analysis is used to assess the interaction of wind propulsion with the IMO’s proposed Net Zero Framework and EU policies (FuelEU Maritime and the EU ETS) under a range of scenarios. The results indicate that the business case for wind propulsion is materially improved under these regulations, although the impact does differ depending on the scenario modelled:
- IMO’s proposed Net Zero Framework: This is a more complex two-tier fuel standard with different penalties applied to non-compliance with each target. As a result, there could be situations where near-term cost savings from wind propulsion are volatile but in the long run, cost savings will follow a similar trajectory to the abatement cost curve of the alternative fuel or penalties being displaced. Additionally, the analysis suggests there could be a net benefit to the IMO if it supports the installation of wind propulsion through the proposed reward mechanism for zero (or near zero) emission fuels and energy sources when the wind propulsion is used in conjunction with fuels that also are claiming that reward.
- IMO plus EU policies: Depending on the strategy employed, a ship that operates under the IMO’s proposed Net Zero Framework with full exposure to the EU could be exposed to two additional liabilities. The first is the high cost for non-compliance with the EU’s fuel standard which can heavily penalise any approach that involves the use of fossil fuels and penalties to comply with the IMO’s fuel standard. The second is the EU ETS which also increases the overall cost of any approach involving fossil fuels. The addition of wind propulsion will be positive in almost all instances and can generate large savings for higher cost approaches, although this may not be enough to bring overall costs down to the level of alternative approaches which do not use fossil fuels.
- EU policies only: In the absence of the IMO’s fuel standard dictating the emission intensity trajectories and the value derived from overcompliance, the addition of wind propulsion could have two key outcomes. Firstly, it could potentially bring the attained emission intensity of a ship below the FuelEU Maritime target for a 5-year period. Secondly, the surplus credits generated through overcompliance would enable the marginal CAPEX associated with wind propulsion to be pooled across a larger number of ships.