How do multiple policy incentives influence investors’ decisions on biomass co-firing combined with carbon capture and storage retrofit projects for coal-fired power plants?

Abstract

In the face of the challenges posed by carbon-neutral actions, this study explores the economic viability of using biomass co-firing and carbon capture and storage technology to retrofit current coal-fired power plants as a feasible option for decarbonization. The study uses the real options approach to evaluate the potential project value under different uncertainties and policy scenarios. It is found that while feed-in tariff offers the highest policy value, the existing policy mix falls short of meeting investor criteria for retrofit investments. Raising carbon prices may encourage investment in retrofit projects that combine biomass co-firing with carbon capture and storage by improving investment value and advancing investment time. The study recommends the formulation of a composite policy scheme that includes electricity price subsidy and carbon tax credit for carbon capture and storage to promote retrofit projects. It also suggests higher carbon prices, minimum utilization hours guarantees, and increased technical innovation support to promote the development of retrofit projects in existing coal-fired power plants. In summary, the study provides a robust framework for investors and policymakers to devise optimal investment and policy strategies that can effectively promote decarbonization efforts worldwide.