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The profitability of pre-commercial floating offshore wind projects : a study of four funding mechanisms

Orth, Marlene; Becker, Andreas Jan-Gerrit
Master thesis
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URI
http://hdl.handle.net/11250/2407445
Date
2016
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  • Master Thesis [4207]
Abstract
This thesis analyses the economic impact of different governmental support

mechanisms on the investment in a pre-commercial floating offshore wind farm. An

important contribution of this study is its investigation of funding regimes in the

context of floating offshore wind and its analysis of the impact of subsidies from an

investor’s viewpoint, rather than from a social welfare perspective. Despite its

potential to help meet the world’s energy demand through clean electricity generation,

thus mitigating climate change, floating offshore wind is not yet cost competitive with

onshore wind generation or electricity generation from conventional sources. There is

need for governmental support in order to encourage private investment to further

develop the technology and achieve cost reductions through learning effects. This

study investigates which type of support scheme is best suited to attract such investor

support by evaluating the economic impact of four different funding mechanisms on a

pre-commercial model floating wind farm. We analyse the market-based certificate

scheme in Scotland and three different combinations of price-based mechanisms in

Japan, France and Hawaii.

We find that a tradable green certificate scheme, as constituted by the Scottish

example, is best suited to encourage investor support because it yields the most

favourable return on investment. Notably, the Japanese feed-in tariff system

constitutes an almost equal investment opportunity. The authors therefore recommend

policymakers choose between a market-based certificate scheme and a non-market

based feed-in tariff scheme the one that best suits the economic philosophy associated

with governmental funding prevailing in their respective jurisdiction. If a feed-in

tariff is chosen, we recommend policymakers phase out this support once floating

technology has reached a certain level of maturity and replace it with a feed-in

premium. This support encourages a better integration of floating offshore wind into

the electricity mix and into the market.

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