Work

Real Options-Based Feasibility Evaluation of Offshore Wind Farm Development in Korea’s Idle Coastal Areas

Year: 2025

Type: article

Abstract: This study evaluates the economic feasibility of offshore wind farm development on idle coastal areas in Korea, focusing on the Wando Geumil Offshore Wind Farm (GOWF) as a representative case. Offshore wind farms are increasingly recognized as key contributors to achieving carbon neutrality, and Korea’s coastal idle zones offer strategic potential for large-scale deployment with minimal land-use conflict. To address market uncertainty—particularly the sensitivity of revenues to the Renewable Portfolio Standard (RPS) and Renewable Energy Certificate (REC) weight—this research applies both the Discounted Cash Flow (DCF) method and Real Options Analysis (ROA), incorporating expansion and contraction scenarios. Using eleven years of historical System Marginal Price (SMP) and REC data, we estimate price volatility via a Geometric Brownian Motion (GBM) model (σ = 23.04%). The DCF results indicate a negative Net Present Value (NPV) of −313.7 million USD, suggesting baseline infeasibility. In contrast, ROA adds strategic value, with the expansion option yielding 69.6 million USD and the contraction option 2.1 million USD in additional project value. These findings demonstrate that integrating policy-driven revenue uncertainty into ROA substantially alters investment recommendations, offering practical guidance for optimizing offshore wind farm deployment on Korea’s idle coastal sites.

Source: Energies

DOI: 10.3390/en18184976

Authors: Seoungbeom Na, Jaebin Lee, Woosik Jang

Institutions: Mokpo National University, Chosun University

Language: English

Topic: Capital Investment and Risk Analysis

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Climate action, Affordable and clean energy, Industry, innovation and infrastructure

Open Access status: gold

Estimated APC paid: $3,137