A real options approach for cost benefits assessment of power generation from underground coal gasification with CCS

Underground gasification combined cycle (UGCC) with carbon capture and storage (CCS) is regarded as a promising method of carbon-neutral coal gasification power generation, capable of effectively reducing greenhouse gas emissions and environmental pollution. However, due to high capital investment and uncertainties, the UGCC-CCS project has not yet been commercially deployed. In view of this, the study adopted the real options approach to perform the investment returns analysis of UGCC-CCS. In this study, several critical uncertain factors such as carbon price, technological process and policy incentives were considered. And the critical carbon for the investment were obtained and the recommendations for future project investments were provided. The results showed that investment returns cannot be obtained for UGCC-CCS power plants when the carbon market is ignored. Once UGCC-CCS power plants are integrated into the carbon market, the critical carbon price for investment is 518.49 CNY/t and 527.93 CNY/t under carbon capture and CCS, respectively, with the optimal investment time being 2032. When the feed-in tariff subsidy is 0.5 CNY/kWh or the research and development subsidy is 3 billion CNY, the optimal timing to invest can be advanced to 2027 and 2028, respectively.