Investment Strategy of Offshore Wind Power Under Gradient Interactive Policy Mixes: A Real Options Approach

Abstract

Offshore wind power (OWP) has become one of the most important renewable energy sources in the global energy transition. The interactive influence of different policies, i.e., Feed-in tariff (FIT), R&D subsidies, fiscal and tax support (FTS) and tradable green certificates (TGC), has become a key issue to decision makers (DMs) on OWP investment. In this paper, a four-layer investment decision-making framework based on real option (RO) and Least-squares Monte Carlo simulation (LS-MCS) is developed to analyze the influence of policy interaction mixes. And then, a case study of Xiangshan County is proposed to verify the effectiveness of the proposed decision-making framework and analyze the investment strategy of OWP project. The key findings of this study are as follows: (1) the considered OWP project at Xiangshan County is shown to be delayed by 4 years or more in all the considered gradient interactive policy mixes; (2) the improvement of technological innovation ability has the least effect on reducing project cost, while R&D subsidy has the best effect, but with the increase of R&D subsidy, its promoting effect gradually weakens; (3) although China's TGC market is still in its infancy, it has great development potential to improve the returns of OWP projects.

Keywords: Real option, policy incentive situational, offshore wind power investment, local government subsidy, tradable green certificates