Study on the investment timing of carbon capture and storage under different business modes

Abstract

AbstractIn this paper, the optimal investment timing decision in carbon capture and storage (CCS) is studied under different business modes. Two analytical models of the optimal CCS investment threshold are presented: one is the ‘single mode,’ meaning that CCS investment is performed only by the power producer; the other is the ‘cooperation mode,’ referring to CCS investment can be conducted by cooperation between the power producer and the CCS operator. In the single mode, this study pictures the investment decision for a CCS project based on real options theory considering uncertainties in carbon prices, government incentives, and CCS investment costs. On this basis, a model for the cooperation mode is proposed by integrating real options theory and game theory to analyze the CCS investment threshold. The results of a numerical example show that CCS investment in cooperation mode requires a much larger threshold than in single mode. Moreover, the CCS investment threshold is positively affected by carbon price volatility and the transfer payments coefficients, but negatively affected by government incentives and learning effects. These conclusions provide a theoretical foundation for decision making regarding CCS investment and related policy making. © 2018 Society of Chemical Industry and John Wiley & Sons, Ltd.