Stochastic modeling of decarbonizing strategy, policy, and market-induced incentives for the US electricity sector

Abstract

In line with the global pursuit of achieving net-zero carbon emissions, integrating carbon capture and storage (CCS) and renewable energy (RE) technologies is important in power production. This study evaluates the profitability of CCS and RE technologies as alternative ways of achieving climate change goals. While past research focused on costs, technological advancements, and capture methods, there is a need for more studies on assessing the financial feasibility of these climate change solutions under uncertain conditions, alongside specific performance goals and strategies to entice power producers. Using a comprehensive framework featuring deterministic and stochastic modeling approaches, this research explores the impact of policy and market incentives on CCS and RE investments within the U.S. power sector. It analyzes the interactions of variables such as market uncertainties, technical factors, and policy dynamics on the financial viability of adopting CCS and RE for targeted CO2 reductions. The results reveal that, given the status quo of policies, RE and CCS exhibit annualized net present values of $4.62 and $1.76, respectively, for each metric ton (MT) of CO2. Uncertainties in policy incentives emerge as a primary hindrance to achieving cost-effective carbon reduction mandates using CCS, while changes in the green electricity price premium cause high variability in RE returns. The study proposes a hypothetical market, featuring the sale of CCS-linked net-zero electricity at a distinctive premium price of $0.03/kWh. The study's findings underscore the importance of both policy and market incentives to enable power producers to deploy carbon management technologies at a large scale.