Funding concept promotes installation of scrubber systems by offering financing to shipowners, with returns taken from fuel price spread
In a move intended to help ease the financial burden on shipowners seeking to install scrubber systems to meet sulphur emissions legislation, Wärtsilä and Clean Marine Energy (Europe) Ltd. (CME) have signed a collaboration agreement that will provide a funding solution to drive the uptake of exhaust gas cleaning technology.
The financing solution, similar to those in the building environment space, enables a shipowner to repay the cost of the scrubber system installation via a fuel adder, i.e. a fuel premium on the price of heavy fuel oil (HFO) by which the shipowner repays the cost of installing the scrubber. This provides a return from the differential between HFO and marine gasoil (MGO) for a period of four to six years, depending on price spreads. This means shipowners do not have the burden of meeting the up-front capital expenditure, which is typically between $3 million and $12 million per vessel. This investment is often difficult to pass on to charterers, whereas with CME financing, the fuel adder charge can be easily passed on until such time as the scrubber system is paid for. The concept therefore minimizes the impact on the owner's balance sheet, banking and security arrangements.
Juha Kytölä, Vice President, Wärtsilä Environmental Solutions said, "This funding concept enables shipowners to increase the value of their asset without taking on additional debt, thereby making it easier to achieve long-term compliance with increasingly stringent environmental legislation. Wärtsilä is proud to be at the forefront of developing innovative solutions aimed at assisting customers to reduce both their operational costs and their environmental footprint. This collaboration agreement with CME is one more example of this philosophy."
Pace Ralli, Co-founder and Director of CME (Europe) commented, "The shipping industry is faced with a number of environmental regulations right now, often with a significant capital burden. Despite lower fuel costs, there is an even greater spread between HFO and MGO; as much as 90% in some cases. This allows us to inject capital to pay for the installation of a scrubber, allow the shipowner some of the benefits of continuing to burn HFO and still take out a return. In addition, the asset value improves, while the ship owner is compliant with new tighter ECA regulations. We see the CME solution as filling a gap in the financing of the latest scrubber technology. CME and Wärtsilä can provide the financed installation and maintenance of a scrubber through CME's Emissions Compliance Service Agreement (ECSA)."
The International Maritime Organization (IMO) introduced legislation that became effective at the beginning of 2015 restricting emissions of sulphur oxides (SOx) from ships operating in restricted Sulphur Emissions Control Areas (SECAs) to 0.1%. Sulphur levels of 0.5% will be applicable globally, when the broader legislation enters into force in either 2020 or 2025. The European Commission has mandated that the 0.5% sulphur limit will be applicable in European Union waters from 2020.
There are currently three available options for owners to meet these regulations; by using low sulphur fuel, which is far more expensive than conventional marine diesel; converting to gas fuelled operation (LNG); or installing scrubber systems that enable conventional fuel to be burned.