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Comprehensive techno-economic analysis of a floating offshore wind farm based on real options approach in the Korean power market

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  • Hwang, Sunghyun
  • Kim, Mun-Kyeom

Abstract

Floating offshore wind power holds significant potential for advancing renewable energy (RE) integration within the Korean power market. However, investment decisions in this sector are challenged by multiple uncertainties, including fluctuations in system marginal prices (SMP), foreign exchange rates, wind speed variability, and high capital expenditures. This study employs a Real Options Approach (ROA) to capture these uncertainties and quantify the additional value that can be achieved through strategic policy interventions. Through the modeling of key volatility factors such as SMP and exchange rate risks using both Geometric Brownian Motion (GBM) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) (1,1) models, the analysis evaluates both Net Present Value (NPV) and Real Option Value (ROV) under various scenarios. The results demonstrate that government policies, such as fixed-price contracts and Renewable Energy Certificate (REC) weighting adjustments, can significantly enhance project profitability, with a minimum REC weight of 2.5 identified as being critical for economic viability. This framework provides valuable insights for policymakers to optimize Renewable Portfolio Standard (RPS) strategies and supports investors in making informed decisions when the market is uncertain.

Suggested Citation

  • Hwang, Sunghyun & Kim, Mun-Kyeom, 2025. "Comprehensive techno-economic analysis of a floating offshore wind farm based on real options approach in the Korean power market," Energy, Elsevier, vol. 335(C).
    • Handle: RePEc:eee:energy:v:335:y:2025:i:c:s0360544225037569
    DOI: 10.1016/j.energy.2025.138114
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