Research project CG/DD1/231 (Research action CG)
CONTEXT
In comparison to other fuels, coal is characterised by larger reserves, but also by much higher pollutant emissions. Do new, less polluting, but more expensive coal power plants have a future? What will be the impact of the liberalisation of the European electricity market ? How can it be ensured that the technologies introduced will be compatible with sustainable development?
THE PROJECT
Objectives
The COAL OPTIONS project is pursuing four closely linked objectives:
1. Improve our knowledge of the potential for innovation in power plants using fossil fuels (coal and natural gas).
2. Improve allowance for uncertainties and plant flexibility faced with investment decisions in an evolving context ("flexibilities").
3. Improve our understanding of the future investment choices by power companies and the effect of these choices on greenhouse gas emissions.
4. Identify conditions of coal utilisation that are compatible with sustainable development.
Methodology
The project relies on standardised technical data and on an economic assessment tool taken from the financial world.
The technical (= efficiency of conversion into electricity), environmental (= CO2, NOx, SO2 emissions) and economic (= investment cost, construction time, cost price of the electricity produced) performances of the new types of power plants using fossil fuels are determined in the first instance from information provided by the constructors and operators of power plants and, secondly, using thermodynamic and physical/chemical models. The latter make it possible, moreover, to estimate the potential for innovation in the medium and long term for each of the technological options.
A banker managing a portfolio of securities on the stock market faces many uncertainties. To help him in his task, modern finance has developed numerous risk management tools that are particularly well adapted to assessing the return on investment in such a context (options theory).
We apply this same methodology to the assessment of coal and natural gas power plants in the context of a competitive and uncertain electricity market (real options theory).
The method makes it possible to tackle numerous uncertainties pervading the European electricity market, namely:
1. fuel prices
2. electricity prices
3. standards and costs relating to pollutant emissions
4. evolution of power plant technological performances
The method also makes it possible to give a financial value to the capability of a power plant to adapt to fluctuating conditions ("flexibility"):
1. fuel substitution
2. re-powering options
3. ability to adapt to applied emission standards
4. operational flexibility
Above and beyond the initial option relative to the choice of the type of power plant, it will also be possible to consider the option of delaying investment, the option of stopping or resuming electricity production depending on the applicable price of electricity, and the option of changing fuel with or without additional investment in accordance with fuel prices or environmental constraints.
PARTNERS
- TERM, Department of Thermodynamics, UCL
Technological characteristics (technical, environmental, economic) and flexibility characteristics for the following four types of power plant:
1. gas-fired combined cycle (STAG).
2. pulverised coal-fired plants with supercritical steam cycle (PC-USC).
3. Integrated coal gasification combined cycle (IGCC).
4. Combined cycle with pressurised fluidised bed coal combustion (PFBC).
Steady-state technological and economic optimisation of the power plants by means of commercial codes (ASPEN PlusTM, ECLIPSETM) and innovation potential (medium and long term).
- CORE, Centre for Operations Research and Econometrics, UCL
Application of the real options theory: processing of uncertainties (fuel prices, electricity prices, costs relating to pollutant emissions) and modelling of investment decisions using the real options theory.
EXPECTED RESULTS
A study of the technical perspectives offer the least polluting coal technologies and the identification of barriers to their market entry. This will enable the legislator to develop incentives that will steer economic agents now subject to the laws of competition in the direction of competitive, ‘green’ investments.
This study will provide:
1. A method for the technical and economic optimisation of electric power plants that makes it possible to estimate the potential for innovation. This method will be transposable to other types of thermal power plants (combined heat and power, biomass, etc.).
2. A tool for investment assessment adapted to the new liberalised context of the electricity sectors.
3. Recommendations on technological choices and most suitable incentive measures within the framework of a sustainable development policy.
Evaluation of coal-based power generation in an uncertain context: summary
Brussels: OSTC, 2001 (SP1003)
[To download]
Coal options: evaluation of coal-based power generation: final report
Smeers, Y. - Bolle, L. - Squilbin, O. Brussels: OSTC, 2001 (SP0985)
[To download]
[Exhausted]
