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Sustainability 2016, 8(6), 563; doi:10.3390/su8060563

Biomass Power Generation Investment in China: A Real Options Evaluation

1
College of Economics and Management, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China
2
Research Centre for Soft Energy Science, Nanjing University of Aeronautics and Astronautics, 29 Jiangjun Avenue, Nanjing 210016, China
*
Author to whom correspondence should be addressed.
Academic Editor: Veera Gnaneswar Gude
Received: 19 February 2016 / Revised: 29 May 2016 / Accepted: 9 June 2016 / Published: 17 June 2016
(This article belongs to the Special Issue Sustainable Biofuel Production)
View Full-Text   |   Download PDF [4446 KB, uploaded 17 June 2016]   |  

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, CO2 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 CO2 price is not sufficient to advance the most likely optimal investment time. The impacts of several factors, including subsidy policy, CO2 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. View Full-Text
Keywords: straw-based power generation; real options; uncertainty; optimal investment strategy straw-based power generation; real options; uncertainty; optimal investment strategy
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Zhang, M.; Zhou, D.; Ding, H.; Jin, J. Biomass Power Generation Investment in China: A Real Options Evaluation. Sustainability 2016, 8, 563.

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