Biomass Power Generation Investment in China: A Real Options Evaluation

Mingming Zhang, Dequn Zhou, Hao Ding and Jingliang Jin
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Mingming Zhang: College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China
Dequn Zhou: College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China
Jingliang Jin: College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China

Sustainability, 2016, vol. 8, issue 6, 1-22

Abstract: This paper proposes a real options model for evaluating the biomass power generation investment in China. The uncertainties in the market price of electricity, CO 2 price and straw price are considered. Meanwhile the dynamic relationship between installed capacity and fuel cost, as well as the long-term reduction of subsidy are described. Two scenarios, i.e. , with the carbon emission trading scheme existent and non-existent, respectively, is built to empirically analyze the investment of a 25-MW straw-based power generation project. The results show that investors should undertake the investment in 2030 under two scenarios. Investment values are 14,869,254.8 and 37,608,727 Chinese Yuan (RMB), respectively. The implementation of the carbon emission trading scheme theoretically helps improve investment value and advance the most likely optimal investment time. However, the current CO 2 price is not sufficient to advance the most likely optimal investment time. The impacts of several factors, including subsidy policy, CO 2 price, straw price, installed capacity, correlation structure and the validity period of investment, on the optimal investment strategy are also examined. It is suggested that governments take some measures, including increasing subsidy, setting the growth pattern of subsidy and establishing and perfecting a nationwide carbon trading market, to improve the investment environment and attract more investments.

Keywords: straw-based power generation; real options; uncertainty; optimal investment strategy (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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