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

Seoungbeom Na, Jaebin Lee and Woosik Jang ()
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Seoungbeom Na: Coast and River Spatial Information Research Lab., Department of Architectural, Civil, and Environmental Engineering, Mokpo National University, Muan 58554, Jeonnam, Republic of Korea
Jaebin Lee: Coast and River Spatial Information Research Lab., Department of Architectural, Civil, and Environmental Engineering, Mokpo National University, Muan 58554, Jeonnam, Republic of Korea
Woosik Jang: Department of Civil Engineering, Chosun University, Gwangju 61452, Republic of Korea

Energies, 2025, vol. 18, issue 18, 1-19

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.

Keywords: renewable energy; real option analysis; offshore wind farm; uncertainty; idle coastal areas (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2025
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