Optimal Cleaning Power Generation Investment Strategy in a Carbon Tax and CO<sub>2</sub> Emission Trading Framework

Abstract

This paper studies a two-staged cleaning energy investment problem under uncertainty. It analyzes how a power generation firm may proceed with staged generation capacity investment and deployment of the carbon capture device through real options approach. The results indicate that, because of the variation fluctuation of electricity price, the investor tends to delay investing when the electricity price is lower, whereas the higher price-price ratio of CO2 and electricity is helpful for him to deploy ahead the carbon capture device, the main reason is that the yields from the sale of CO2 emission allowances can compensate him foe the higher operation cost of it.