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Evaluation of Two Alternative Carbon Capture and Storage Technologies: A Stochastic Model
Keywords: carbon capture and storage; enhanced oil recovery; power plants; stochastic model; futures markets; real options.
Author(s): Luis M. Abadie, Ibon Galarraga and Dirk Rübbelke
Date: 2013-06-03
Issue: 2013-07
Download this working paper (459 KB.)
In this paper we evaluate two alternative CCS technologies of a coal-fired power plant from an investor’s point of view. The first technology uses CO2 for enhanced oil recovery (EOR) paired with storage in deep saline formations (DSP) and the second one just stores CO2 in DSF. For projects of this type there are many sources of risk, and three sources of uncertainty stand out: the price of electricity, the price of oil and the price of carbon allowances. In this paper we develop a general stochastic model that can be adapted to other projects such as enhanced gas recovery (EGR) or industrial plants that use CO2 for either EOR or EGR with CCS. The model is calibrated with UK data and applied to help understand the conditions that generate the incentives needed for early investments in these technologies. Additionally, we analyse the risks of these investments.