Investing in Offshore Wind Energy

Mathias Frederik Reimich & Valdemar Ellegaard Stage

Student thesis: Master thesis

Abstract

This thesis analyzes how investors should assess offshore wind projects to achieve the best returns. It finds that investors should asses offshore wind projects by combining the knowledge of all the identified key value drivers with the knowledge of the different industry lifecycle stages to enter markets at the optimal point in time and invest in projects with most attractive characteristics according to our key value drivers. To do so, investors should also focus on the support schemes and the inherent trade-off between investing now in a less mature industry with a higher risk and potential return or postponing to invest in a more mature and thus safer market. By doing so, we believe the investor is in the optimal position to achieve the best returns. It does so through a comprehensive assessment of the key drivers identified in the literature. It uses 449 real-life projects across 16 countries (on 3 continents) and 20 years to analyze the key value drivers, their trends and impact on IRR. This global scope shows that the industry performance develops like an S-curve in different “waves” with a general improvement in performance over time, but with great geographical variance. For the key value drivers, it find through a multiple linear regression that the most important drivers are respectively: Nameplate Capacity (+), OPEX (-), Capacity Factor (+), distance to shore (-) and depth (-), meaning that the investors should pay greatest attention to these. Albeit, it does not directly observe the influence that electricity prices (+), CAPEX (-), decommissioning costs (-) and energy loss factors (-) have on IRR these driver all impose great impact on IRR. It test these drivers one by one against IRR and find that Electricity prices have the biggest influence on IRR, followed by CAPEX and lastly the energy loss factor. Furthermore, the thesis finds that the investor should pursue the FiT tariff due to the safety it provides investors. This thesis contributes to the literature by using “real data” combined with a global scope. This brings a new, unique perspective to future investors.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final ThesisMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages148