Coal Power Environmental Stress Testing in China

Jiahai Yuan, Mengya Wu, Weirong Zhang, Yu Guo and Minpeng Xiong
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Jiahai Yuan: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Mengya Wu: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Weirong Zhang: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Yu Guo: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Minpeng Xiong: School of Economics and Management, North China Electric Power University, Beijing 102206, China

Sustainability, 2018, vol. 10, issue 7, 1-19

Abstract: The development of China’s coal power industry is accompanied by various environmental risks. In this paper, typical coal power enterprises are taken as examples to establish a tool for environmental cost internalization and environmental risk analysis under the risk constraints of energy efficiency standards, environmental protection tax, national carbon market, water resources tax, overcapacity and renewable energy substitution. The study considered the impact on the value of coal power companies under different stress scenarios and constructed a stress testing framework for environmental risks that affect financial costs. The results show that the impacts of overcapacity and carbon market on enterprise value for individual risks are the main risk drivers that most regions face in different scenarios. In the comprehensive risk stress test, the enterprise value of the 1000 MW ultra-supercritical units in each region was found to have a small difference from the corporate value of the reasonable return in the optimistic and pessimistic scenarios, while the 300 MW and 600 MW sub critical units were more likely to deviate from the reasonable return due to low energy efficiency and high operating costs. With continuous increase in the severity of environmental risks, the environmental stress test helps coal power companies and financial institutions understand the impact of environmental risks on the financial status of the company and thus influence investment decisions.

Keywords: stress test; DCF model; capital asset pricing model; weighted average cost of capital (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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