Considering risks in early stage investment planning for emission abatement technologies in large combustion plants

Fossil fuels will continue to be the most important energy source for electricity generation in most parts of the world for the next decades. Therefore emission abatement technologies in large combustion plants are an important measure to reduce the emission of pollutants and to lower the negative effects thereof for humans, animals and the environment. Investment decisions for emission reduction measures are, however, facing various kinds of risks and uncertainties, caused by political, technological, economic and legal influences. The consideration of these risks in early stage investment planning is often complex yet important for investors. This paper investigates the possibilities to consider risks and uncertainties in early stage investment and cost calculation methodologies of different complexity. The real options analysis is presented as well as less complex methods, such as Monte-Carlo or sensitivity analyses that lower the calculation effort. The application of a specifically developed risk portfolio is recommended before quantitatively investigating risks. This portfolio helps to identify the most critical risks and to focus on them, reducing again the calculation effort. The presented approach is not only of interest for investors, but also for policies, especially if data is scarce or uncertainties exist regarding specific plant parameters or cost and price components. The content of this paper is presented using the example of nitrogen oxide emission reduction measures. It is, however, possible, to transfer the results to other pollutants or technologies in a related context.