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Risk vs. Reward: A Methodology to Assess Investment in Marine Energy

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  • John Hutcheson

    (Institute for Energy Systems, The University of Edinburgh, Edinburgh EH9 3JL, UK)

  • Adrián De Andrés

    (Institute for Energy Systems, The University of Edinburgh, Edinburgh EH9 3JL, UK)

  • Henry Jeffrey

    (Institute for Energy Systems, The University of Edinburgh, Edinburgh EH9 3JL, UK)

Abstract

The majority of WEC (wave energy converter) projects are expensive and pose a large risk to a developer. Currently no developers have been successful in commercialising a WEC. So far, many wave energy feasibility studies have only considered the LCOE (levelised cost of electricity), assessing investment in marine energy technologies from a purely financial point of view. No previous studies have, however, explicitly accounted for development risk as well as the LCOE to determine the feasibility of a project. This paper proposes a new methodology that can be used to account for both risk and the LCOE to give a clearer picture of the feasibility of a WEC development. By combining the LCOE and risk score for a particular development, the “value for risk” can be calculated, presented here as the “RR ratio” (“Risk/Reward ratio”). A number of case studies were chosen to test the model, investigating the RR ratio for a number of different WEC technologies and ranking them to suggest an optimal development path for the industry. Results showed that projects that combine many innovative technologies provide the best “value for risk”. These devices overall had the highest risk, suggesting that multiple developers are likely required to collaborate in order to reduce the risk down to acceptable levels for each.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jsusta:v:8:y:2016:i:9:p:873-:d:77047
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    References listed on IDEAS

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    Cited by:

    1. Diego Vicinanza & Mariano Buccino, 2017. "A Helicopter View of the Special Issue on Wave Energy Converters," Sustainability, MDPI, vol. 9(2), pages 1-4, February.
    2. Raúl Cascajo & Rafael Molina & Luís Pérez-Rojas, 2022. "Sectoral Analysis of the Fundamental Criteria for the Evaluation of the Viability of Wave Energy Generation Facilities in Ports—Application of the Delphi Methodology," Energies, MDPI, vol. 15(7), pages 1-25, April.
    3. Foteinis, Spyros, 2022. "Wave energy converters in low energy seas: Current state and opportunities," Renewable and Sustainable Energy Reviews, Elsevier, vol. 162(C).
    4. Daniel Ganea & Valentin Amortila & Elena Mereuta & Eugen Rusu, 2017. "A Joint Evaluation of the Wind and Wave Energy Resources Close to the Greek Islands," Sustainability, MDPI, vol. 9(6), pages 1-22, June.

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