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Quantifying the uncertainty of wave energy conversion device cost for policy appraisal: An Irish case study

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  • Farrell, Niall
  • Donoghue, Cathal O’
  • Morrissey, Karyn

Abstract

Wave Energy Conversion (WEC) devices are at a pre-commercial stage of development with feasibility studies sensitive to uncertainties surrounding assumed input costs. This may affect decision making. This paper analyses the impact these uncertainties may have on investor, developer and policymaker decisions using an Irish case study. Calibrated to data present in the literature, a probabilistic methodology is shown to be an effective means to carry this out. Value at Risk (VaR) and Conditional Value at Risk (CVaR) metrics are used to quantify the certainty of achieving a given cost or return on investment. We analyse the certainty of financial return provided by the proposed Irish Feed-in Tariff (FiT) policy. The influence of cost reduction through bulk discount is also discussed, with cost reduction targets for developers identified. Uncertainty is found to have a greater impact on the profitability of smaller installations and those subject to lower rates of cost reduction. This paper emphasises that a premium is required to account for cost uncertainty when setting FiT rates. By quantifying uncertainty, a means to specify an efficient premium is presented.

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  • Farrell, Niall & Donoghue, Cathal O’ & Morrissey, Karyn, 2015. "Quantifying the uncertainty of wave energy conversion device cost for policy appraisal: An Irish case study," Energy Policy, Elsevier, vol. 78(C), pages 62-77.
    • Handle: RePEc:eee:enepol:v:78:y:2015:i:c:p:62-77
    DOI: 10.1016/j.enpol.2014.11.029
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    2. Adrian De Andres & Jéromine Maillet & Jørgen Hals Todalshaug & Patrik Möller & David Bould & Henry Jeffrey, 2016. "Techno-Economic Related Metrics for a Wave Energy Converters Feasibility Assessment," Sustainability, MDPI, vol. 8(11), pages 1-19, October.
    3. Meng Qi & Xin Dai & Bei Zhang & Junjie Li & Bangfan Liu, 2023. "The Evolution and Future Prospects of China’s Wave Energy Policy from the Perspective of Renewable Energy: Facing Problems, Governance Optimization and Effectiveness Logic," Sustainability, MDPI, vol. 15(4), pages 1-25, February.
    4. Foteinis, S. & Tsoutsos, T., 2017. "Strategies to improve sustainability and offset the initial high capital expenditure of wave energy converters (WECs)," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 775-785.
    5. Yi Zhang & Dapeng Zhang & Haoyu Jiang, 2023. "A Review of Offshore Wind and Wave Installations in Some Areas with an Eye towards Generating Economic Benefits and Offering Commercial Inspiration," Sustainability, MDPI, vol. 15(10), pages 1-32, May.
    6. John Hutcheson & Adrián De Andrés & Henry Jeffrey, 2016. "Risk vs. Reward: A Methodology to Assess Investment in Marine Energy," Sustainability, MDPI, vol. 8(9), pages 1-44, August.
    7. Ramos, V. & Ringwood, John V., 2016. "Exploring the utility and effectiveness of the IEC (International Electrotechnical Commission) wave energy resource assessment and characterisation standard: A case study," Energy, Elsevier, vol. 107(C), pages 668-682.
    8. Niall Farrell & Cathal O'Donoghue & Karyn Morrissey, 2020. "Regional income and wave energy deployment in Ireland," Papers in Regional Science, Wiley Blackwell, vol. 99(3), pages 509-531, June.

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