Generation investment evaluation in emission trading environment

Generation investment decision-making is a very complicated problem in the electricity market environment because of various kinds of uncertainties. The enforcement of the emissions trading scheme will make the problem even more complicated, especially for coal-fired generation units. Given this background, a new approach is developed for evaluating the value of a generation investment project in the electricity market environment with emission trading enforced. A real option-based model for this purpose is proposed, and the project value and optimal investment timing are obtained by employing the least-square Monte-Carlo method. The impacts of market factors and the regulation policy upon generation investment decision-making are illustrated by numerical examples in different scenarios.