Modelling the investment in carbon capture retrofits of pulverized coal-fired plants

•This paper focuses on the investment decision to retrofit an existing SCPC unit with CCS technology.•Several uncertainty factors and CCS operation flexibility have been taken into account.•The impact of CCS related cost and carbon price/subsidy level are investigated and discussed.•Our proposed model is most suitable for plant owners' CCS retrofit decisions.

This paper focuses on the investment decision to retrofit an existing supercritical pulverized coal (SCPC) unit with carbon capture and storage (CCS) technology. We establish a valuation model with discrete sequential investment decision-making based on real options theory, and we consider the following uncertainty factors: electricity price, carbon price, CCS investment cost and CO2 additional O&M cost. We also take CCS operation flexibility into account. We solve the model using the least squares Monte Carlo (LSM) method. We employ four indicators—cost saving value, investment risk, emission abatement amount and average capture rate—to evaluate the investment decision to retrofit China's existing SCPC unit with CCS. The results illustrate the following: (1) CO2 capture (additional O&M) cost can be the most significant factor that will affect CCS retrofit investment; (2) the existing level of CCS technology and policy framework cannot support the plant owner to retrofit the existing SCPC unit with CCS; and (3) the carbon price or capture subsidy must be at a high level to control the CCS retrofit investment risk such that it is less than 5%. Our proposed model is most suitable for plant owners' CCS retrofit decisions.