Financing Capture Ready: Issuing Tradable Capture Option

’Capture Ready’ is a design concept that will enable fossil fuel plants to be more easily and economically retrofitted with Carbon Capture and Storage (CCS) technologies during their life time. However, Capture Ready is not eligible to be financed by selling carbon credits under the Emissions Trading Scheme (ETS) in EU or the Clean Development Mechanism (CDM) market in non-annex one countries. On the other hand, the possibility of developing a policy incentive to encourage Chinese power plants to adopt Capture Ready in the next few years is extremely low, while industry, especially the electric power industry, is risk averse with respect to Capture Ready investment (Liang, 2006). As a result, a tradable Capture Option is introduced as a novel solution to finance Capture Ready plants. By selling Capture Options, Capture Ready plants can be financed and optimized immediately through normal market mechanisms relying solely on a private sector context. Moreover, from a global point of view, Capture Option concept is able to move CCS forward politically, speed up technology development, enhance liquidity for Capture Ready investment, help Capture Ready investors to diversify risk, and offer global warming investors an alternative investment opportunity. Finally, the value of Capture Option and Capture Ready in a 600MW supercritical pulverised coal fired (PC) power plant in China are priced by Real Option analysis of a cash flow model and Monte-Carlo simulation.