Should the Norwegian government subsidize offshore wind projects?

Abstract

This thesis conducts a cost-benefit analysis of the offshore wind farm, Sørlige Nordsjø II, amidst ongoing debates on whether the Norwegian government should subsidize such projects given uncertainties in profitability. There is a growing demand for renewable electricity as more industries transition to electrification, prompting the government to prioritize offshore wind development. Exploring the case study of SN II to assess its benefits and costs is particularly intriguing. Despite bottom-fixed wind turbine technology being considered mature today, this project encounters specific challenges, including its greater depth, distance from shore, and larger wind turbines compared to other projects.

To answer the research question on whether the Norwegian government should subsidize offshore wind projects, the net present value (NPV) of the quantified estimates for SN II will be calculated. Given the high uncertainty of variables such as electricity prices and investment costs, a sensitivity analysis will be conducted, exploring various scenarios for these variables and the discount rate. Additionally, discussions on non-quantifiable estimates will contribute to supporting the conclusion.

The results indicate a significantly negative NPV in the reference scenario. However, the sensitivity analysis reveals that lower investment costs and higher electricity prices could potentially result in a positive NPV with discount rates of 4% or 6%. Anticipating whether technological advancements will reduce investment costs to 40 bNOK and whether electricity prices will be at a high level in the future is difficult to predict.

The thesis concludes that Norway should refrain from subsidizing the project at this time due to the significantly negative result. However, it does not outright reject the idea, as there may be long-term benefits. Realizing offshore wind projects can help achieve climate goals, create jobs, stimulate technological advancements which will reduce investment- and operational costs. This could potentially make future offshore wind projects profitable.