| dc.description.abstract | Attracting offshore wind power investors is important for the Norwegian government to reach
its development goal for offshore wind power. This thesis presents an investment decision
model to evaluate the investment incentive in offshore wind farms and hybrid projects under
various grid configurations. Using a real-options approach, based on a binomial lattice method
that embeds deferral options, the model derives the investment incentive and the optimal
investment timing for investors in an uncertain environment. The results show that the grid
configuration has a significant impact on the investors investment incentive. A three-market
hybrid configuration is generally preferred over a radial connection to Norway and a twomarket hybrid by offshore wind power investors. I find that the offshore wind farm is more
profitable in a hybrid configuration when it is connected to markets with higher prices than
NO2, low price volatility, and a positive correlation with NO2. Under a historic electricity price
level, the results suggests that subsidies are necessary to attract investors. However, using a
simulated future electricity price level, offshore wind farm can become viable without
subsidies. Additionally, the results show that a hybrid configuration does not necessarily reduce
the offshore wind power project’s risk. Moreover, investors and regulators preference in grid
configuration are partially aligned. A two-market hybrid is undesirable for wind farm investors
but preferred by regulators, but both find a three-market hybrid configuration desirable. The
conclusion of this thesis can provide useful guidelines for policy makers determining grid
configuration, as this decision affect investment incentive for offshore wind power investors
and the socio-economic benefit from offshore wind development. | |
