Using Fuzzy Real Options Valuation for Assessing Investments in NGCC and CCS Energy Conversion Technology

Christian Kraemer () and Reinhard Madlener
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Christian Kraemer: Institut für Elektrische Anlagen und Energiewirtschaft, Postal: Schinkelstraße 6, 52062 Aachen, Germany

No 3/2009, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: In this paper we study the relative advantage of investing in a natural gas combined-cycle (NGCC) power plant versus a coal-fired power plant with and without carbon capture and storage (CCS) technology. For the investment analysis under uncertainty, we apply fuzzy real options theory. Three different price scenarios for fuel input and CO2 emission permits are taken into consideration. For the assumptions made, we find evidence that the NGCC and (to a lesser degree) the conventional hard coal-fired power plant are the most cost-effective options, followed by the two CCS technologies ‘Oxyfuel’ and ‘Pre-combustion’. In contrast, due to high specific investment costs and significant losses in conversion efficiency, the third CCS option ‘Post-combustion’ remains uneconomical. The sensitivity analysis reveals that already at moderate cost reductions, ‘Pre-combustion’ and ‘Oxyfuel’ both become economically viable and, at sufficiently low CO2 permit prices or interest rates, even the preferred options.

Keywords: Real options analysis; Fuzzy sets; NGCC; Coal combustion; CCS (search for similar items in EconPapers)
JEL-codes: G11 Q42 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2009-11
Note: FCN Working Paper No. 3/2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:fcnwpa:2009_003

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