Co-firing coal with wood pellets for U.S. electricity generation: A real options analysis

Hui Xian, Gregory Colson, Bin Mei and Michael E. Wetzstein

Energy Policy, 2015, vol. 81, issue C, 106-116

Abstract: In contrast to EU, U.S. electric utilities are not employing the bioenergy technology of co-firing wood pellets with coal. This difference in employment patterns is explored within a real options analysis (ROA) for possible U.S. utilization of wood pellets, considering fuel-price series from 2009 to 2014. For analysis, these series are divided into two sub-periods based on different market conditions: Infancy (2009–2011) and Substitution (2012–2014). ROA indicates co-firing wood pellets with coal is feasible considering adoption during wood pellets' infancy, under low discount rates, and long power-plant lifespans. A portfolio effect of employing multiple fuels underlies this result. However, co-firing is not currently economically feasible. The different adoption decisions are likely a consequence of recent cheap and abundant U.S. natural gas. For co-fired wood pellets to be feasible, government incentives and/or a market increase in natural gas prices appear necessary.

Keywords: Bioenergy; Government incentives; Regime switching models; Renewable resources; Stochastic processes (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (14)

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Working Paper: Assessing the feasibility of cofiring wood pellets with coal for electricity generation: A real option analysis (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:81:y:2015:i:c:p:106-116

DOI: 10.1016/j.enpol.2015.02.026

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