HEC Research Papers Series,
HEC Paris

Abstract: Moving toward a net zero energy system demands heavy investment in renewable energy sources. Wind energy, specifically offshore wind, has proven to be one of the most promising technologies in this space. To that end, there is a significant trend toward installing larger turbines further offshore, based on the premise that these, often massive installations, generate more energy with less intermittency, which has been a considerable challenge in integrating renewables into the electricity grid. We explore the operational reality of this trend by building a mathematical model of electricity generation that captures the economics and environmental impact of offshore wind electricity generation that spans the lifecycle of the wind turbines, including the maintenance and end-of-life phases. We find that the ongoing trend of larger turbines further offshore can undermine the economic viability of wind farms. Specifically, we show that the decision maker's profit is inverse-U shaped both in turbine size and distance to the shore. Under reasonable assumptions, the optimal turbine size may decrease in the distance to the coast, suggesting that considering maintenance and end-of-life costs, it can be optimal for the further offshore turbines to be smaller. These results are mediated by wake loss---the phenomenon that the wind energy available to be harnessed downwind is reduced after passing through a turbine. Overall, our results caution against considering only the short-term engineering aspects and invite a more thorough understanding of wind turbines' lifetime economics and environmental impact in determining the size and distance to the shore of the wind turbines.

Keywords: Renewable Energy Investment; offshore Wind; Closed loop supply chains

JEL-codes: D24; L95; Q42; Q48

26 pages, February 12, 2024

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