Impact Assessment of the Residual Lifespan of Coal-fired Power Plants on the Investment Risk of Carbon Capture and Storage Retrofit

This research constructs an assessment model for carbon capture and storage (CCS) retrofit of coal-fired power plants (CFPP) by adopting the real option theory. Due to the prohibitive costs associated with retrofitting and insufficient residual lifespan of CFPP, CCS projects may fail to recoup their investment before units are decommissioned. The key contribution of this paper is that it investigates the impact of the residual lifespan of the units on the failure rate of the retrofit investment in addition to the optimal timing of the unit's CCS retrofit. Considering different installed capacities, utilization hours, clean energy subsidy and carbon trading mechanism, this study sets up seven scenarios to assess the impact of different investment environments on the value of project investment. In terms of sensitivity analysis, the residual lifespan of the unit, its interaction with carbon price, carbon price volatility, technological advancement rate, and subsidy level are examined for their impacts on the project investment risk. The findings suggest that the critical period for determining the long-term success of most coal-fired unit retrofits may be present, and more supportive policies need to be examined to facilitate the green transformation and upgrading of coal-fired units.