Wave energy conversion (WEC) remains a viable option for renewable
energy production, but levelized cost of electricity (LCOE) estimates
remain higher than other energy alternatives. We conduct an investment
analysis that includes the market value of electricity and show that a
negative Net Present Value (NPV) project is the likely result. However,
we also show that such a project may have sufficient option value for the
expected NPV to turn positive. This change in investment decision is
supported by applying the theory of real options to model the uncertainty
of future electricity prices and a project’s optimal decisions. Our
analysis demonstrates that this investment is like a financial out-of-the money
call option. The results of this research support government
decisions on the need for additional investment and/or incentives, or the
possibility of public-private partnerships. These financial models
support long-term planning and investment decisions for large scale
development and deployment of in WEC systems in the coming years.