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Analysis of carbon-abatement investment for thermal power market in carbon-dispatching mode and policy recommendations

Xinhua Zhang, Hongming Yang, Qian Yu, Jing Qiu and Yongxi Zhang

Energy, 2018, vol. 149, issue C, 954-966

Abstract: In this paper, we present a framework that aims to minimise power generation costs while satisfying carbon emission constraints. We then construct a carbon-abatement investment-option game model for asymmetric generation companies. The results show that the investment behavior of generation companies is largely affected by the critical value of the electricity price after carbon-abatement investment (relative decarbonization price). When the relative decarbonization price is lower than the critical value, only generation companies with low emission are motivated to invest in carbon abatement. By contrast, companies with high emission will only make such investments when the relative decarbonization price is higher than the critical value. We find that raising the proportion of competitive electricity will stimulate generation companies to invest in carbon abatement, while the influence of carbon-emission targets on investment behavior is uncertain. Compared with implementing a subsidy, increasing the relative decarbonization price can motivate generation companies to invest in carbon abatement more effectively.

Keywords: Option game; Carbon-abatement investment; Generation market; Policy analysis (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:energy:v:149:y:2018:i:c:p:954-966