An Investment Feasibility Analysis of CCS Retrofit Based on a Two-Stage Compound Real Options Model

Herui Cui,Tian Zhao,Ruirui Wu

doi:10.3390/en11071711

Herui Cui, Tian Zhao + Show 1 more

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https://doi.org/10.3390/en11071711

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Journal: Energies	Publication Date: Jul 1, 2018
Citations: 6	License type: CC BY 4.0

Affiliation: North China Electric Power University

Abstract

Carbon capture and storage (CCS) technology is an attractive technique to help power enterprises with carbon emission reduction. In this paper, a two-stage CCS retrofit investment in an existing coal-fired power plant in China including the first stage (demonstration project) and second stage (commercial operation) is taken as a case to decide when and whether to invest. Distinguished from previous models, a binomial lattice compound real options model including the options to defer and expand is established. Further, the accounting approaches to certified emission reductions (CERs) based on the thermodynamics principle are first proposed concerning this model. We find the total invest value under compound options model is less than zero, although greater than that by NPV method. The results indicate carbon prices and subsidy policy, respectively, play a dominating role in initiating the CCS investment at the first and second stage. The growth in government subsidy at the first stage has obviously greater effects on decreasing critical carbon trading prices. Besides, the minimum critical carbon price is 87.09 RMB/ton with full subsidy, greater than the current price (56 RMB/ton). This also illustrates it is not the optimal occasion to invest in a CCS retrofit project for power enterprises.

Highlights

China has become the largest CO2 emitter in the world [1]
The results indicate carbon prices and subsidy policy, respectively, play a dominating role in initiating the carbon capture and storage (CCS) investment at the first and second stage
Based on equations calculating the drift and volatility [17], the concerning parameters of carbon prices and coal prices are obtained: P0c = 47.978 RMB/ton, f μc = −0.087965, and σc = 0.6359663; P0 = 479.592

Summary

Introduction

China has become the largest CO2 emitter in the world [1]. Based on the International EnergyAgency (IEA), CO2 emissions caused by fuel combustion in China increased to 9134.9 Mt in 2014, 333%growth compared with 1990. China has become the largest CO2 emitter in the world [1]. Agency (IEA), CO2 emissions caused by fuel combustion in China increased to 9134.9 Mt in 2014, 333%. Power generation from coal combustion was responsible for 47% total CO2 emissions. Referring to the China Electricity Council, the generation capacity of coal-fired power plants in 2016 was 4288.6 TWh, accounting for 71.6% of the whole generation capacity [2]. The development tendency of coal-fired power is still steadily rising. It is believed that this trend is expected to last owing to increasing energy consumption [3,4,5,6]

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