Valuation of CCS-ready coal-fired power plants: a multi-dimensional real options approach

Rohlfs, Wilko; Madlener, Reinhard

doi:10.1007/s12667-011-0034-9

Cited by 40 publications

(22 citation statements)

References 14 publications

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“…Mo and Zhu (2014) develop a model for investment in CCS retrofits of existing plants in which carbon capturing can be switched off to analyze the impact of a carbon price-floor policy on CCS investment and CO 2 abatement. Based on a multi-factor real options model Rohlfs and Madlener (2011) find that low carbon prices in particular render investment in carbon-capture-ready (CCR) plants less attractive than investment in a conventional plant with a later retrofit. Finally, Xun et al (2014) rely on a real options model with multiple uncertainties to derive the optimal technology choice among the competing generation technologies CCS, combined cycle gas turbine (CCGT), wind power and nuclear under different market conditions.…”

Section: Introductionmentioning

confidence: 99%

Delaying the introduction of emissions trading systems—Implications for power plant investment and operation from a multi-stage decision model

Schleich

Zhu

et al. 2015

Energy Economics

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International audienceRelying on real options theory, we employ a multistage decision model to analyze the effect of delaying the introduction of emission trading systems (ETS) on power plant investments in carbon capture and storage (CCS) retrofits, on plant operation, and on carbon dioxide (CO2) abatement.Unlike previous studies, we assume that the investment decision is made before the ETS is in place, and we allow CCS operating flexibility for new power plant investments. Thus, the plant may be run in CCS-off mode if carbon prices are low. We employ Monte Carlo simulation methods to account for uncertainties in the prices of CO2 certificates, other inputs, and output prices, relying on a realistic parameterization for a supercritical pulverized coal plant in China. We find that CCS operating flexibility lowers the critical carbon price needed to support CCS investment because it renders CCS investment less irreversible. For a low carbon price path, operating flexibility also implies that delaying the introduction of an ETS hardly affects plant CO2 abatement since the plant operator is better off purchasing emission certificates rather than operating the plant in CCS mode. Interestingly, for low carbon prices we find a U-shaped relation between the length of the delay and the economic value of the plant. Thus, delaying the introduction of an ETS may make investors worse off

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Section: Introductionmentioning

confidence: 99%

Delaying the introduction of emissions trading systems—Implications for power plant investment and operation from a multi-stage decision model

Schleich

Zhu

et al. 2015

Energy Economics

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“…That is the main reason why we choose the B-S method, and this method is relatively manoeuvrable to match the model provided. The ROA method has been used in analysing the CCS investment problem [30,31]. The problem in this paper is finding the best investment strategy for carbon capture system planning.…”

Section: Black-scholes Option Pricing Theorymentioning

confidence: 99%

Carbon dioxide capture and storage planning considering emission trading system for a generation corporation under the emission reduction policy in China

Feng

et al. 2015

IET Generation, Transmission & Distribution

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Power generation corporations face challenges from emission reduction targets (ERTs) of government policy from the increasingly explicit demand for carbon dioxide (CO 2 ) emission reduction. CO 2 capture and storage (CCS) is receiving considerable attention as a potential greenhouse gas mitigation option for fossil-fuelled power plants. In this study, a mathematical model is built to select the proper plants to deploy CCS under the Emission Trading System. The model considers factors such as clean energy development, fuel price fluctuation and economic level growth in the next five years to maximise the profit of the whole corporation under the premise of fulfilling the ERT in China. The Black-Scholes option pricing theory is used to analyse the investment potential amid yearly carbon price fluctuations. A discrete bacterial colony chemotaxis algorithm is then used to solve the model. The model is illustrated by an example of 11 plants with 17 units subordinated to a certain corporation in Hebei, China. The results show that the CCS planning situations in three carbontrading scenarios and their option values can effectively provide the investment strategy references for power generation corporations.

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“…Several more recent studies have examined building CCS-ready plants, but do not compare the cost of brownfield and greenfield CCS (e.g. Bohm, Herzog, Parsons, & Sekar, 2007;Rohlfs & Madlener, 2011). No comprehensive estimate of site-specific retrofit costs exists for Alberta.…”

Section: Electricity Generationmentioning

confidence: 99%

Policy uncertainty and diffusion of carbon capture and storage in an optimal region

2014

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Carbon capture and storage (CCS) has the potential to dramatically reduce GHG emissions in energy supply and industry. However, its high costs mean that uncertainty about the stringency of future climate policy may dissuade firms from investing in this technology. This article explores the relationship between firms expectations of government policy and investment in CCS. First, it synthesizes recent cost estimates for CCS applications in electricity generation and oil sands extraction in Canada. Second, it uses these estimates to investigate the potential impact of policy stringency and uncertainty on CCS adoption in Alberta, a Canadian province with near-ideal CCS potential. The results suggest investment in CCS, and by extension other costly abatement actions, will not occur unless governments create a more stringent and durable climate policy environment than currently exists. Policy relevanceThis paper has two novel and linked objectives, the first of significant utility to researchers and energy modellers in particular, the second to climate policy analysts and decision makers. First, it synthesizes publicly available carbon capture and storage literature and develops cost estimates for key applications related to thermal electricity generation and oil sands extraction in Canada. Second, it uses these cost estimates to investigate the potential impact of policy stringency and uncertainty on carbon capture and storage adoption in Alberta, Canada. Alberta is a test case for CCS due to its fossil resources and high CO 2 storage potential, and the technology's success or failure in this jurisdiction should be of interest to policy makers elsewhere.

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Valuation of CCS-ready coal-fired power plants: a multi-dimensional real options approach

Cited by 40 publications

References 14 publications

Delaying the introduction of emissions trading systems—Implications for power plant investment and operation from a multi-stage decision model

Delaying the introduction of emissions trading systems—Implications for power plant investment and operation from a multi-stage decision model

Carbon dioxide capture and storage planning considering emission trading system for a generation corporation under the emission reduction policy in China

Policy uncertainty and diffusion of carbon capture and storage in an optimal region

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