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Investment optimization path of NG power generation in China based on carbon value realization and market linkage

Zaili Zhen, Liyun Lou, Lixin Tian and Qibing Gao

Applied Energy, 2018, vol. 210, issue C, 241-255

Abstract: Basedonrealoptionstheory, this paper builds a model for analysing Chinese NG (Natural gas) power generation costs, cost reduced due to the substitution of original thermal power generation with NG power generation and the carbon value in this process. This study presents a mathematical representation of the cost savings of NG. It is the first model to introduce market linkage mechanism in order to discuss the problems with the analyses of the costs of China’s NG power generation. On the basis of considering many uncertain factors, this article attempts to unravel the market linkage effect based on the model analyses with and without the consideration of market linkage mechanism, as well as the impact analyses of the cost-savings in NG power generation project. From the perspective of power generation businesses, the paper model and analyse cost reduced brought by the substitution of original thermal power generation with NG power generation and the carbon value. Government subsidies and carbon values are added to the simulation section. The article provides the change curves of NG power generation, thermal power generation and carbon prices under random paths through path simulation and compares multiple uncertain factors under a single path. Five scenarios are proposed with different assumptions and the results indicate that the market linkage of nature gas price can help to decrease the cost of nature gas-fired power generation. Furthermore, it addresses the scenario of obtaining government subsidies to reduce the cost of NG power generation when carbon value exists. The conclusions of the study will help power companies assess the value of natural gas power generation projects and help them decide whether to invest in the project.

Keywords: Real option theory; Carbon value; Gas power generation; Government subsidies on gas power generation (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:appene:v:210:y:2018:i:c:p:241-255