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Investment optimization path of NG power generation in China based on carbon value realization and market linkage

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  • Zhen, Zaili
  • Lou, Liyun
  • Tian, Lixin
  • Gao, Qibing

Abstract

Basedonrealoptionstheory, this paper builds a model for analysing Chinese NG (Natural gas) power generation costs, cost reduced due to the substitution of original thermal power generation with NG power generation and the carbon value in this process. This study presents a mathematical representation of the cost savings of NG. It is the first model to introduce market linkage mechanism in order to discuss the problems with the analyses of the costs of China’s NG power generation. On the basis of considering many uncertain factors, this article attempts to unravel the market linkage effect based on the model analyses with and without the consideration of market linkage mechanism, as well as the impact analyses of the cost-savings in NG power generation project. From the perspective of power generation businesses, the paper model and analyse cost reduced brought by the substitution of original thermal power generation with NG power generation and the carbon value. Government subsidies and carbon values are added to the simulation section. The article provides the change curves of NG power generation, thermal power generation and carbon prices under random paths through path simulation and compares multiple uncertain factors under a single path. Five scenarios are proposed with different assumptions and the results indicate that the market linkage of nature gas price can help to decrease the cost of nature gas-fired power generation. Furthermore, it addresses the scenario of obtaining government subsidies to reduce the cost of NG power generation when carbon value exists. The conclusions of the study will help power companies assess the value of natural gas power generation projects and help them decide whether to invest in the project.

Suggested Citation

  • Zhen, Zaili & Lou, Liyun & Tian, Lixin & Gao, Qibing, 2018. "Investment optimization path of NG power generation in China based on carbon value realization and market linkage," Applied Energy, Elsevier, vol. 210(C), pages 241-255.
    • Handle: RePEc:eee:appene:v:210:y:2018:i:c:p:241-255
    DOI: 10.1016/j.apenergy.2017.11.023
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    References listed on IDEAS

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    Cited by:

    1. Devine, Mel T. & Russo, Marianna, 2019. "Liquefied natural gas and gas storage valuation: Lessons from the integrated Irish and UK markets," Applied Energy, Elsevier, vol. 238(C), pages 1389-1406.
    2. Ping Shi & Bo Yan & Jun Zhao, 2020. "Appropriate timing for SMEs to introduce an Internet-based online channel under uncertain operating costs: a real options analysis," Electronic Commerce Research, Springer, vol. 20(4), pages 969-999, December.

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