A real options–based CCS investment evaluation model: Case study of China’s power generation sector

Lei Zhu and Ying Fan

Applied Energy, 2011, vol. 88, issue 12, 4320-4333

Abstract: This paper establishes a carbon capture and storage (CCS) investment evaluation model based on real options theory considering uncertainties from the existing thermal power generating cost, carbon price, thermal power with CCS generating cost, and investment in CCS technology deployment. The model aims to evaluate the value of the cost saving effect and amount of CO2 emission reduction through investing in newly-built thermal power with CCS technology to replace existing thermal power in a given period from the perspective of power generation enterprises. The model is solved by the Least Squares Monte Carlo (LSM) method. Since the model could be used as a policy analysis tool, China is taken as a case study to evaluate the effects of regulations on CCS investment through scenario analysis. The findings show that the current investment risk of CCS is high, climate policy having the greatest impact on CCS development. Thus, there is an important trade off for policy makers between reducing greenhouse gas emissions and protecting the interests of power generation enterprises. The research presented would be useful for CCS technology evaluation and related policy-making.

Keywords: CCS technology; Carbon price; Cost saving; Real options; LSM (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (90)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0306261911002273
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:appene:v:88:y:2011:i:12:p:4320-4333

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/bibliographic
http://www.elsevier. ... 405891/bibliographic

DOI: 10.1016/j.apenergy.2011.04.005

Access Statistics for this article

Applied Energy is currently edited by J. Yan

More articles in Applied Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().