Optimal investment conditions for electrification of Edvard Grieg : a discrete dynamic programming approach
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- Master Thesis 
This thesis investigates the optimal investment conditions for switching the Edvard Grieg field from traditional power generation methods (gas turbines) to electrical power from shore. By interpreting this problem as a cost-minimization problem, the wholesale electricity price is the main stochastic element. A discrete dynamic programming model, implementing backward recursion, is implemented to find the threshold wholesale electricity prices for choosing between gas turbines and PFS. Additionally, different future carbon prices and their effects on the threshold price are examined, given the criticality of carbon prices for the gas turbine solution’s costs. Upon running the dynamic programming model, the baseline model yielded a threshold wholesale electricity price of 295 NOK/MWh. This indicates that PFS would be the optimal choice when the wholesale electricity price is at or below 295 NOK/MWh. Upon completing a sensitivity analysis for the oil price and OPEX parameters, it is found that the threshold electricity price does not change, only the project value range changes. Thereafter, a 10% and 25% increase in the carbon emission tax is examined. A 10% increase in the carbon tax price yields a threshold electricity price of 320 NOK/MWh, while a 25% increase yields 360 NOK/MWh. Lastly, the critical carbon price was found to be 1003 NOK/ton, representing the level of carbon tax necessary to negate the gas turbine option. This thesis finds the PFS solution economically viable in some cases, illustrating different levels of threshold electricity prices given the current environment. However, there are more concerns against PFS than just economic ones, such as electricity import, export of emissions, etc. Decisions concerning the fate of PFS at the Edvard Grieg platform are in discussion now, but it could be years before a final decision is made.