Study on carbon capture and storage (CCS) investment decision-making based on real options for China's coal-fired power plants

Abstract

In this paper, a quadrinomial model based on the theory of real options is developed to evaluate the investment in carbon capture and storage (CCS) retrofitting for existing coal-fired power plants in China. Uncertainties in carbon price, fossil fuel price, investment cost and government subsidy are considered. An existing typical 600 MW supercritical pulverized coal-fired (SCPC) plant is taken as a case study to illustrate the proposed model, and the effects of government subsidy under different scenarios on the critical carbon price to invest in CCS are analyzed. The results indicate that the real options approach has an advantage over the application of traditional net present value (NPV) method when handling uncertainty. And government subsidy has significant effects on reducing critical carbon price for investment in CCS. The critical carbon prices are 103.56 RMB/ton with 100% subsidy and 217.95 RMB/ton without subsidy, while the current average carbon price is 85.2 RMB/ton. This means that the current trading environment is not positive enough to attract investment in CCS retrofitting. These conclusions provide theoretical foundation for decision-making of CCS investment and related policy-making.