Support mechanisms and risk: Implications on the Nordic electricity system

Investments in renewable energy projects, such as offshore wind parks, are very much dependent on financial support. The type of policy instrument chosen for such support determines investors' exposure to market risk, and thus influences which rate of return they expect to achieve. We make a stochastic analysis for the Nordic electricity system by conducting simulations with the energy system model Balmorel and by applying the mean-standard deviation approach of modern portfolio theory to quantify risk implications of policy instruments for an exemplary offshore wind park.

The analysis reveals that the two support policy schemes Feed-in Tariffs and Feed-in Premiums provide different risk-return relationships. In the investigated case, a Feed-in Premium scheme would require a 13% higher support level, because of a 6% higher exposure of investors to market risk. Our findings can help when designing policy support, both regarding type of policy chosen and level of support.