Unleashing the wind: The role of carbon reduction revenue in Shanghai's distributed wind power investments

Abstract

Distributed wind power has the potential to contribute significantly to China's carbon neutrality goals. However, the recent policy shift away from wind power subsidies necessitates a thorough examination of alternative revenue streams, such as carbon emission reduction benefits. In response to this need, our paper aims to assess the impact of carbon reduction revenue on the investment viability of distributed wind power projects. Employing the Monte Carlo method, we construct investment models for a case study based in Shanghai, incorporating variables like feed-in tariffs and carbon trading prices. Our analysis reveals that, although distributed wind power investments are generally feasible, optimal investment should be deferred until 2031 according to real options analysis. We further note that carbon reduction revenue can enhance the investment value and shorten the dynamic payback period of these projects; however, current low trading volumes and prices for carbon credits do not sufficiently compensate for the absence of subsidies.