Abstract
The main goal of this article is to build a decision model for an investment involving the addition of a CCS (Carbon dioxide Capture and Storage) installation in an existing conventional power plant. The application of CCS systems in coal and gas power plants involves large capital expenditures and an increase in operating costs. The lack of upgrade modernisation and environmentally friendly investments in this type of power plant generates the additional costs of the purchase of emission allowances. An analysis of the impact of the addition of a CCS installation to an existing coal power plant on the costs of electricity generation is presented. Based on the accessible technical and economic data, a concept has been framed and an original decision-making model has been developed for an investment consisting in constructing a CCS installation in an existing power plant. A novelty of the paper is the presented proprietary decision-making model in conditions of uncertainty using the real options approach. Stochastic state variables are included in the model: the price of the CO2 emission allowance, the unit costs of capturing, transporting, storing and stockpiling CO2 and the unit costs of electricity generation. It is assumed that the time curves of the state variables are described by equations of geometric Brownian motions. The values of standard deviations in the equations are measures of uncertainty. The value of the retrofit option is defined as the maximum value from the expected net present value. From the dynamic optimisation equation, resulting from Bellman’s principle of optimality, it results that the retrofit option must satisfy the differential equation. The calculations were made for a specific, commercially applicable case of CCS technology in order to present the model’s capabilities. The analyses’ results and conclusions are presented.
Highlights
The investment process in the electric power industry, especially in the case of constructing a power plant, is encumbered with considerable uncertainty relating to the formation of both capital expenditures and the costs of electricity generation
When analyzing the market situation of power plants in Poland, both the price of electricity on the wholesale energy market (HRE) and the price of CO2 emission allowances should be taken into account
Stochastic state variables are included in the model: the price of the CO2 emission allowance, the unit costs of capturing, transporting, storing and stockpiling
Summary
The investment process in the electric power industry, especially in the case of constructing a power plant, is encumbered with considerable uncertainty relating to the formation of both capital expenditures and the costs of electricity generation. 2009/31/EC called CCS Directive required suitable space on the installation site for the equipment necessary to capture and compress CO2 in newly built combustion plants with a rated electrical output of 300 megawatts or more This approach assumes the possible retrofit for post-combustion CCS installations. CCU technologies are at the stage of advanced trials of commercial applications, so in the future it will be possible to introduce CCU technologies into model analysis
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