An economic feasibility study including subsidies for an offshore wind-power project

An economic feasibility analysis considering the effects of subsidies was performed for an offshore wind-power project under construction in Korea. The assessment of this project utilized traditional economic indicators such as Net Present Value (NPV) and Internal Rate of Return (IRR), and the result showed a positive NPV and an IRR of 6.7% that exceeded the Weighted Average Cost of Capital (WACC) of 4.8%, suggesting that the offshore wind-power project exhibited economically feasible. However, this feasibility was contingent upon governmental institutional supports, i.e., subsidies and policies, – specifically, Renewable Energy Certificates (RECs), REC multiplier, and long-term fixed price contracts that might generate stable cash flows. As a result of sensitive analysis, it indicated that the project at the viewpoint of stock holders would struggle to maintain economic feasibility if the current levels of subsidies were reduced by more than 10%. A comparison of the Levelized Cost of Electricity (LCOE) was calculated excluding the effects of subsidies to further evaluate the competitiveness of this project relative to power generation facilities utilizing other energy sources. The results showed that the LCOE of this project was 129.4 USD/MWh, nearly twice that of offshore wind-power project in the United States (64.6 USD/MWh). This disparity was attributed to relatively low wind resource availability, stemming from its geographical location, as well as the higher associated costs of labor and financing. The results suggested that the energy transition should be carried out gradually with an appropriate mix of traditional and renewable energy sources to mitigate the societal and economic burdens.