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Research Article Open access CC BY 4.0

A Real Options Model to Value Offshore Wind Power Project under Market Linkage Mechanism

Yiqing Li, Weiguo Yang, Lixin Tian

Journal of Energy Research and Reviews · pp. 1–13 · Published 24 Oct 2019

10.9734/jenrr/2019/v3i430105

Abstract

This study puts forward a real options model and uses it to evaluate the investment value of offshore wind power project under market co-movement effect. The main purpose is to check investment benefit of offshore wind power project, as an investor. Several uncertainties are taken into account, including investment costs, feed-in tariffs, carbon prices and policy subsidy. Moreover, an additional uncertain factor, i.e. the market linkage of investment costs, is considered. As a case study, Jiangsu Xiangshui offshore wind park is used to illustrate the model in scenario analysis. Using a least-squares Monte Carlo simulation method, we obtain that the project value is negative. Therefore investors should abandon or postpone investment until better conditions prevail. Furthermore, this paper shows sensitivity analysis of the impact of uncertain factors on the project value. Especially sensitivity analysis of variable costs, it shows a certain impact on project value in here, which has been ignored in previous real options studies. The research results would be helpful for renewable energy project assessment and the decision-making process associated with it.

Real options offshore wind power market co-movement effect least squares Monte Carlo simulation.

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Cited by 4

Real Option Analysis for Renewable Energy: A Systematic Review

Jethro Idowu, Ini Adinya · International Journal of Applied Mathematics and Theoretical Physics · 2026

Decision-making methodologies in offshore wind power investments: A review

Qian Liu, Yan Sun, Mengcheng Wu · 2021

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