An economic evaluation of potential offshore wind farm sites in South Korea using a real options approach

Abstract

In the era of energy transition, climate and topography characteristics make wind energy a promising renewable energy source in South Korea. Following the successful operations of onshore wind power generation, the South Korean government has implemented the 3020 renewable energy implementation plan with a target of establishing 12GW offshore wind farms by 2030. Considering financial and time constraints, it is important to determine the most suitable locations to enable renewable energy farms to achieve the proposed targets for renewable energy production. Although several studies conducted in South Korea have assessed the economic feasibility of potential wind farm sites using the discounted cash-flow method, this method involves some limitations regarding incorporating the value of flexibility and uncertainty factors in the site evaluation process. Thus, this study utilized a real options approach – the Geske compound option model – in a system dynamics framework to evaluate potential sites for offshore wind farms on the mid-west coast of South Korea. Using the developed potential site evaluation model, this study obtained different results from the reference study, which conducted cost-benefit analyses of the same areas. The results of this study demonstrate the importance of flexibility value and uncertainty factors in the site evaluation process. This study also estimates the environmental mitigation of each potential site concerning carbon emission reduction for offshore wind farms.