Carbon Capture and Storage Investment and Management in an Environment of Technological and Price Uncertainties

We have conducted a dynamic stochastic investment analysis of carbon capture, transport and storage (CCTS) retrofitting in an environment of CO2 price and technology uncertainty. It includes the option to invest in, and to use or shut down, the CCTS unit. While modeling certificate price uncertainties is standard, stochastic processes including diminishing increments are implemented for thermal efficiency and investment cost improvements. Following a careful quantification of parameters, the optimal investment strategies are derived and used in Monte Carlo simulations to produce results on aggregate investment decision and resulting profits. All simulation data were presented graphically from a low optimal strategy level to an aggregated expected value level. Our results show, that the main determinate for the application of CCTS is the certificate price. However, realized technology learning results in an earlier application of the technology by electricity producers and also acts as an insurance against the low carbon prices which prohibit profitable CCTS operation. JEL classification: G30; O30; Q40