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Strategies for Financing Large-scale Carbon Capture and Storage Power Plants in China

Xi Liang, Hengwei Liu and David Reiner ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Building on previous stakeholder consultations from 2006 to 2010, we conduct a financial analysis for a generic CCS power plant in China. In comparison with conventional thermal generation technologies, a coal-fired power plant with CCS requires either a 70% higher on-grid electricity tariff or carbon price support of approximately US$50/tonne CO2 in the absence of any other incentive mechanisms or financing strategies. Given the difficulties of relying on any one single measure to finance a large-scale CCS power plant in China, we explore a combination of possible financing mechanisms. Potential measures available for increasing the return on the CCS investment include: enhanced oil recovery (EOR), a premium electricity tariff, and operational investment flexibility (e.g. solvent storage, upgradability). A simulation found that combining several financing options could not only provide private investors with a 12% to 18% return on equity (ROE), but also significantly reduce the required on-grid tariff to a level that is very close to the tariff level of existing coal-fired power plants and much lower than the tariffs for natural gas combined cycle and nuclear power plants. Therefore, we suggest that a combination of existing financing measures could trigger private investment in a large-scale CCS power plant in China.

Keywords: Carbon capture and storage; Coal-fired power plant; Electricity; Finance; China (search for similar items in EconPapers)
JEL-codes: Q4 Q42 O3 O13 P48 (search for similar items in EconPapers)
Date: 2014-08-04
New Economics Papers: this item is included in nep-cna, nep-ene and nep-env
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