Real options based business model for a power gen-co: using advanced power generation technology and carbon credit savings

Abstract

This paper examines the feasibility of clean coal mechanisms based business models to analyse the future of power generation using advanced technologies in a world where constraints on carbon emissions is being adopted rapidly to mitigate the global warming. The premise on which this report is based assumes that government all across the world are undertaking or plan to undertake actions which will ensure restriction of greenhouse gas emissions thereby restricting global warming. With the increased importance of carbon capture and storage (CCS) technologies, this paper suggests possible options available to a firm which is setting up a power plant in year 2010 and tries to assign a probabilistic economic value to that option. The study initially talks about the flow of development of activities around the world which led to the increased focus on cleaner environment and how a power generating company is related to the greenhouse gases emission issues. Subsequently, the development in the field of coal based power generation has been discussed together with the possible mechanisms which are being planned to capture and reduce CO2emissions. On the basis of the findings, we this paper tries to come up with a real option based model solution considering certain parameters for the power plant in question. Three technologies have been considered to compare and contrast the analysis: Pulverized Coal based Supercritical Plant Pulverized Coal based Ultra Supercritical Plant Gasification based Integrated Gasification Combines Cycle Plant The inclusion of CO2 capture and sequestration is a critical technology aimed at reducing CO2 emissions significantly. Though availability of CCS makes a significant difference in the utilization of coal, it comes at a very high cost high enough, as of today, to mitigate all the benefits arriving from its implementation. With this fact as a base, the findings corroborate the common perception that clean coal mechanisms are not feasible at present. The last part of this report deals with intensive analysis of the findings to identify the main factors which drive the cash flows and what-if analysis for varied CER prices.