Evaluating China's biomass power production investment based on a policy benefit real options model

Xingwei Wang, Yanpeng Cai and Chao Dai

Energy, 2014, vol. 73, issue C, 751-761

Abstract: In this study, a policy benefit real options model was developed to evaluate biomass power production investment in China. A method based on the cumulative probability was proposed using binomial decision tree calculations for the exercising of options in order to evaluate the optimal investment timing. Two scenarios were analyzed to identify the optimal investment strategy with/without the consideration of revenue from certified emission reduction (CER). Uncertainties in straw purchased price, government incentives, and technological improvements were considered. The results showed that it was not optimal for immediate investment in biomass power production in China. Given full government subsidy, the thresholds of straw purchased price for scenarios 1 and 2 are 213.55 and 218.87 RMB/ton, respectively, while the current straw purchased price in Chinese market is 220 RMB/ton. The investment of biomass power production would be executed at 2022 and 2028 with/without the consideration of revenue from CER in the current situation in China if there are no government incentive to encourage motivation, respectively. The conclusion could provide useful information for power enterprise decision-makers on whether and when to invest a biomass power production in China in an uncertain environment.

Keywords: Biomass power production; Economic evaluation; Policy benefit model; Binomial tree model; Real options approach; Uncertainty (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0360544214007798
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:energy:v:73:y:2014:i:c:p:751-761

DOI: 10.1016/j.energy.2014.06.080

Access Statistics for this article

Energy is currently edited by Henrik Lund and Mark J. Kaiser

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