Research On Investment Decision Of CCS For Coal-Fired Power Plant Based On Real Options Analysis

Greenhouse gases'excessive emission has become an increasingly serious environmental problem in recent years because of arising global warming, extreme weather events occurring frequently. Carbon dioxide capture and storage technology (CCS) can meet the energy supply for economic development and can achieve the near zero emissions of carbon dioxide meanwhile, so it has tremendous reduction potential. China has become the world's largest carbon emission country and coal-fired power plant's emissions achieved near the half of the total emissions, so coal-fired power plant investing CCS project is particularly important for carbon dioxide emissions of China. However, CCS investment faces high uncertainty, while the real option analysis is the effective tools to evaluate investment projects of high uncertainty, so this article introduce real option analysis to the decision-making of power plant's CCS investment.This paper firstly introduces the basic theory of real options, then based on the characteristics of CCS projects investment in China, identifies the option category of CCS project investment, namely the Option to Defer, analyses the advantage of real options contrast to the traditional investment decision-making method, and gives the real option approach application framework in CCS projects investment.Next, under the guidance of this application framework, this paper analyzed some uncertainty factors including carbon emissions trading, electricity price and the clean price, the government's investment subsidies and technological advances. Moreover, utilizing the historical Carbon futures price data of European Climate Exchange we obtained the relevant parameters of carbon allowance emissions following geometric Brownian motion, and calibrated this random process. Based on these uncertainties, this paper puts forward the revenue equation of CCS project investment, constructed the binary tree and the ternary tree model to calculate the investment value of CCS project under the Option to Defer conditions, given the investment decision-making guidelines, and calculation method and its economic implications are given in detail.Finally this paper done a brief analysis of China's coal-fired power plant status and development trend, selected ultra-supercritical PC power plants and IGCC power plants as base plant which may apply CCS technology in future. Calculated by simulation we get the critical condition to invest CCS project for two types of power plants under the rules of real options, and compared the results with NPV rule's critical conditions. Thereafter done sensitivity analysis and given some policy recommendations.