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Biomass Power Generation Investment in China: A Real Options Evaluation

Author

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  • Mingming Zhang

    (College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China
    Research Centre for Soft Energy Science, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China)

  • Dequn Zhou

    (College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China
    Research Centre for Soft Energy Science, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China)

  • Hao Ding

    (College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China
    Research Centre for Soft Energy Science, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China)

  • Jingliang Jin

    (College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China
    Research Centre for Soft Energy Science, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China)

Abstract

This paper proposes a real options model for evaluating the biomass power generation investment in China. The uncertainties in the market price of electricity, CO 2 price and straw price are considered. Meanwhile the dynamic relationship between installed capacity and fuel cost, as well as the long-term reduction of subsidy are described. Two scenarios, i.e. , with the carbon emission trading scheme existent and non-existent, respectively, is built to empirically analyze the investment of a 25-MW straw-based power generation project. The results show that investors should undertake the investment in 2030 under two scenarios. Investment values are 14,869,254.8 and 37,608,727 Chinese Yuan (RMB), respectively. The implementation of the carbon emission trading scheme theoretically helps improve investment value and advance the most likely optimal investment time. However, the current CO 2 price is not sufficient to advance the most likely optimal investment time. The impacts of several factors, including subsidy policy, CO 2 price, straw price, installed capacity, correlation structure and the validity period of investment, on the optimal investment strategy are also examined. It is suggested that governments take some measures, including increasing subsidy, setting the growth pattern of subsidy and establishing and perfecting a nationwide carbon trading market, to improve the investment environment and attract more investments.

Suggested Citation

  • Mingming Zhang & Dequn Zhou & Hao Ding & Jingliang Jin, 2016. "Biomass Power Generation Investment in China: A Real Options Evaluation," Sustainability, MDPI, vol. 8(6), pages 1-22, June.
    • Handle: RePEc:gam:jsusta:v:8:y:2016:i:6:p:563-:d:72187
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    References listed on IDEAS

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    5. Yuan, Rong & Rodrigues, João F.D. & Tukker, Arnold & Behrens, Paul, 2018. "The impact of the expansion in non-fossil electricity infrastructure on China’s carbon emissions," Applied Energy, Elsevier, vol. 228(C), pages 1994-2008.

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