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    Evaluation of power investment decisions under uncertain carbon policy: A case study for converting coal fired steam turbine to combined cycle gas turbine plants in Australia

    194460_194460.pdf (447.4Kb)
    Access Status
    Open access
    Authors
    Shahnazari, M.
    McHugh, A.
    Maybee, Bryan
    Whale, J.
    Date
    2013
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Shahnazari, Mahdi and McHugh, Adam and Maybee, Bryan and Whale, Jonathan. 2013. Evaluation of power investment decisions under uncertain carbon policy: A case study for converting coal fired steam turbine to combined cycle gas turbine plants in Australia. Applied Energy. 118: pp. 271-279.
    Source Title
    Applied Energy
    DOI
    10.1016/j.apenergy.2013.12.050
    ISSN
    03062619
    Remarks

    NOTICE: This is the author’s version of a work that was accepted for publication in Applied Energy. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Applied Energy, Volume 118, 1 April 2014, Pages 271-279. http://doi.org/10.1016/j.apenergy.2013.12.050

    URI
    http://hdl.handle.net/20.500.11937/38903
    Collection
    • Curtin Research Publications
    Abstract

    Greenhouse gas (GHG) intensive fuels are currently a major input into the Australian electricity sector. Accordingly, climate change mitigation policies represent a systematic risk to investment in electricity generation assets. Although the Australian government introduced carbon pricing in 2012 and announced a commitment to the continuation of the Kyoto protocol beyond 2012, the opposition at the time signalled that should they be provided the opportunity they would repeal these policies. This paper uses a real options analysis (ROA) framework to investigate the optimal timing of one potential business response to carbon pricing: investment in the conversion of coal plant to lower emission CCGT plant. An American-style option valuation method is used for this purpose. The viewpoint is from that of a private investor assessing three available options for an existing coal plant: (1) to invest in its conversion to CCGT; (2) to abandon it, or; (3) to take no immediate action. The method provides a decision criterion that informs the investor whether or not to delay the investment. The effect of market and political uncertainty is studied for both the Clean Energy Act 2011 (CEA) and high carbon price (HCP) policy scenarios. The results of the modelling suggest that political uncertainty after the implementation of carbon pricing impedes the decision to switch to cleaner technologies. However, this effect can be mitigated by implementing higher expected carbon prices.

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