IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v217y2018icp440-455.html
   My bibliography  Save this article

Simulating the impact of investment preference on low-carbon transition in power sector

Author

Listed:
  • Chen, Huadong
  • Wang, Can
  • Cai, Wenjia
  • Wang, Jianhui

Abstract

With the deepening marketization of the electric power industry in China, its low-carbon transition relies increasingly on enterprise investment decisions. These decisions can be influenced by the risk preferences and technical preferences of the enterprises, thus deviating traditional estimation with respect to both economic optimization and uncertainty. To evaluate the impacts of investment preferences on the development path of the power sector, we developed an agent-based model combined with Monte Carlo simulation to quantitatively capture the risk preferences and adaptive technical preferences of power enterprises in their decision-making process. Two scenarios were established with and without risk preferences and adaptive technical preferences, respectively. The results indicate that both the risk aversion and the adaptive technical preference of power generation enterprises play significant roles in promoting the low-carbon transition of the power sector and that they exhibit a synergistic effect. In addition, the risk aversion of power generation enterprises increases the stability of transition in the power sector. However, these two preferences lead to income loss and additional subsidy burden in the power sector. The preferences of power generation enterprises should be recognized and considered in the design and evaluation of low-carbon policies in China’s power sector.

Suggested Citation

  • Chen, Huadong & Wang, Can & Cai, Wenjia & Wang, Jianhui, 2018. "Simulating the impact of investment preference on low-carbon transition in power sector," Applied Energy, Elsevier, vol. 217(C), pages 440-455.
  • Handle: RePEc:eee:appene:v:217:y:2018:i:c:p:440-455
    DOI: 10.1016/j.apenergy.2018.02.152
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0306261918302757
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.apenergy.2018.02.152?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jano-Ito, Marco A. & Crawford-Brown, Douglas, 2017. "Investment decisions considering economic, environmental and social factors: An actors' perspective for the electricity sector of Mexico," Energy, Elsevier, vol. 121(C), pages 92-106.
    2. Zhu, Lei & Fan, Ying, 2011. "A real options–based CCS investment evaluation model: Case study of China’s power generation sector," Applied Energy, Elsevier, vol. 88(12), pages 4320-4333.
    3. Zhao, Xiaoli & Lyon, Thomas P. & Song, Cui, 2012. "Lurching towards markets for power: China’s electricity policy 1985–2007," Applied Energy, Elsevier, vol. 94(C), pages 148-155.
    4. Wang, Can & Ye, Minhua & Cai, Wenjia & Chen, Jining, 2014. "The value of a clear, long-term climate policy agenda: A case study of China’s power sector using a multi-region optimization model," Applied Energy, Elsevier, vol. 125(C), pages 276-288.
    5. Lin-Ju Chen & Lei Zhu & Ying Fan & Sheng-Hua Cai, 2013. "Long-Term Impacts of Carbon Tax and Feed-in Tariff Policies on China's Generating Portfolio and Carbon Emissions: A Multi-Agent-Based Analysis," Energy & Environment, , vol. 24(7-8), pages 1271-1293, December.
    6. Yuan, Jiahai & Xu, Yan & Kang, Junjie & Zhang, Xingping & Hu, Zheng, 2014. "Nonlinear integrated resource strategic planning model and case study in China's power sector planning," Energy, Elsevier, vol. 67(C), pages 27-40.
    7. Wu, Yang & Yu, Zichao & Ngan, H.W. & Tan, Zhongfu, 2014. "Sustaining China׳s electricity market development," Energy Policy, Elsevier, vol. 73(C), pages 30-37.
    8. Piao, M.J. & Li, Y.P. & Huang, G.H. & Nie, S., 2015. "Risk analysis for Shanghai's electric power system under multiple uncertainties," Energy, Elsevier, vol. 87(C), pages 104-119.
    9. Mo, Jian-Lei & Agnolucci, Paolo & Jiang, Mao-Rong & Fan, Ying, 2016. "The impact of Chinese carbon emission trading scheme (ETS) on low carbon energy (LCE) investment," Energy Policy, Elsevier, vol. 89(C), pages 271-283.
    10. Cong, Rong-Gang & Wei, Yi-Ming, 2010. "Potential impact of (CET) carbon emissions trading on China’s power sector: A perspective from different allowance allocation options," Energy, Elsevier, vol. 35(9), pages 3921-3931.
    11. Cheng, Beibei & Dai, Hancheng & Wang, Peng & Xie, Yang & Chen, Li & Zhao, Daiqing & Masui, Toshihiko, 2016. "Impacts of low-carbon power policy on carbon mitigation in Guangdong Province, China," Energy Policy, Elsevier, vol. 88(C), pages 515-527.
    12. Zhao, Zhen-Yu & Zuo, Jian & Wu, Pan-Hao & Yan, Hong & Zillante, George, 2016. "Competitiveness assessment of the biomass power generation industry in China: A five forces model study," Renewable Energy, Elsevier, vol. 89(C), pages 144-153.
    13. Hui, Jingxuan & Cai, Wenjia & Wang, Can & Ye, Minhua, 2017. "Analyzing the penetration barriers of clean generation technologies in China’s power sector using a multi-region optimization model," Applied Energy, Elsevier, vol. 185(P2), pages 1809-1820.
    14. Wiebe, Kirsten S. & Lutz, Christian, 2016. "Endogenous technological change and the policy mix in renewable power generation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 60(C), pages 739-751.
    15. Pisciella, P. & Vespucci, M.T. & Bertocchi, M. & Zigrino, S., 2016. "A time consistent risk averse three-stage stochastic mixed integer optimization model for power generation capacity expansion," Energy Economics, Elsevier, vol. 53(C), pages 203-211.
    16. Rubin, Edward S. & Azevedo, Inês M.L. & Jaramillo, Paulina & Yeh, Sonia, 2015. "A review of learning rates for electricity supply technologies," Energy Policy, Elsevier, vol. 86(C), pages 198-218.
    17. He, Gang & Kammen, Daniel M., 2016. "Where, when and how much solar is available? A provincial-scale solar resource assessment for China," Renewable Energy, Elsevier, vol. 85(C), pages 74-82.
    18. Wang, Xingwei & Cai, Yanpeng & Dai, Chao, 2014. "Evaluating China's biomass power production investment based on a policy benefit real options model," Energy, Elsevier, vol. 73(C), pages 751-761.
    19. Tang, Ling & Wu, Jiaqian & Yu, Lean & Bao, Qin, 2015. "Carbon emissions trading scheme exploration in China: A multi-agent-based model," Energy Policy, Elsevier, vol. 81(C), pages 152-169.
    20. Nie, S. & Li, Y.P. & Liu, J. & Huang, Charley Z., 2017. "Risk management of energy system for identifying optimal power mix with financial-cost minimization and environmental-impact mitigation under uncertainty," Energy Economics, Elsevier, vol. 61(C), pages 313-329.
    21. Ngan, H.W., 2010. "Electricity regulation and electricity market reforms in China," Energy Policy, Elsevier, vol. 38(5), pages 2142-2148, May.
    22. Elzen, Michel den & Fekete, Hanna & Höhne, Niklas & Admiraal, Annemiek & Forsell, Nicklas & Hof, Andries F. & Olivier, Jos G.J. & Roelfsema, Mark & van Soest, Heleen, 2016. "Greenhouse gas emissions from current and enhanced policies of China until 2030: Can emissions peak before 2030?," Energy Policy, Elsevier, vol. 89(C), pages 224-236.
    23. Zhu, Lei & Fan, Ying, 2013. "Modelling the investment in carbon capture retrofits of pulverized coal-fired plants," Energy, Elsevier, vol. 57(C), pages 66-75.
    24. He, Gang & Kammen, Daniel M., 2014. "Where, when and how much wind is available? A provincial-scale wind resource assessment for China," Energy Policy, Elsevier, vol. 74(C), pages 116-122.
    25. Fan, Lin & Norman, Catherine S. & Patt, Anthony G., 2012. "Electricity capacity investment under risk aversion: A case study of coal, gas, and concentrated solar power," Energy Economics, Elsevier, vol. 34(1), pages 54-61.
    26. Meybodi, Mehdi Aghaei & Beath, Andrew C., 2016. "Impact of cost uncertainties and solar data variations on the economics of central receiver solar power plants: An Australian case study," Renewable Energy, Elsevier, vol. 93(C), pages 510-524.
    27. Lai, Chun Sing & McCulloch, Malcolm D., 2017. "Levelized cost of electricity for solar photovoltaic and electrical energy storage," Applied Energy, Elsevier, vol. 190(C), pages 191-203.
    28. Qi, Tianyu & Winchester, Niven & Karplus, Valerie J. & Zhang, Da & Zhang, Xiliang, 2016. "An analysis of China's climate policy using the China-in-Global Energy Model," Economic Modelling, Elsevier, vol. 52(PB), pages 650-660.
    29. Caralis, George & Diakoulaki, Danae & Yang, Peijin & Gao, Zhiqiu & Zervos, Arthouros & Rados, Kostas, 2014. "Profitability of wind energy investments in China using a Monte Carlo approach for the treatment of uncertainties," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 224-236.
    30. Richstein, Jörn C. & Chappin, Emile J.L. & de Vries, Laurens J., 2014. "Cross-border electricity market effects due to price caps in an emission trading system: An agent-based approach," Energy Policy, Elsevier, vol. 71(C), pages 139-158.
    31. Stanek, Wojciech & Szargut, Jan & Kolenda, Zygmunt & Czarnowska, Lucyna, 2016. "Exergo-ecological and economic evaluation of a nuclear power plant within the whole life cycle," Energy, Elsevier, vol. 117(P2), pages 369-377.
    32. Chen, Qixin & Kang, Chongqing & Xia, Qing & Guan, Dabo, 2011. "Preliminary exploration on low-carbon technology roadmap of China’s power sector," Energy, Elsevier, vol. 36(3), pages 1500-1512.
    33. Tietjen, Oliver & Pahle, Michael & Fuss, Sabine, 2016. "Investment risks in power generation: A comparison of fossil fuel and renewable energy dominated markets," Energy Economics, Elsevier, vol. 58(C), pages 174-185.
    34. Zhang, Qin & Zhou, Dequn & Zhou, Peng & Ding, Hao, 2013. "Cost Analysis of straw-based power generation in Jiangsu Province, China," Applied Energy, Elsevier, vol. 102(C), pages 785-793.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jimenez, I. Sanchez & Ribó-Pérez, D. & Cvetkovic, M. & Kochems, J. & Schimeczek, C. & de Vries, L.J., 2024. "Can an energy only market enable resource adequacy in a decarbonized power system? A co-simulation with two agent-based-models," Applied Energy, Elsevier, vol. 360(C).
    2. Anwar, Muhammad Bashar & Stephen, Gord & Dalvi, Sourabh & Frew, Bethany & Ericson, Sean & Brown, Maxwell & O’Malley, Mark, 2022. "Modeling investment decisions from heterogeneous firms under imperfect information and risk in wholesale electricity markets," Applied Energy, Elsevier, vol. 306(PA).
    3. Yang, Jinxi & Johansson, Daniel J.A., 2024. "Adapting to uncertainty: Modeling adaptive investment decisions in the electricity system," Applied Energy, Elsevier, vol. 358(C).
    4. Garfield Wayne Hunter & Gideon Sagoe & Daniele Vettorato & Ding Jiayu, 2019. "Sustainability of Low Carbon City Initiatives in China: A Comprehensive Literature Review," Sustainability, MDPI, vol. 11(16), pages 1-37, August.
    5. Wei, Yigang & Liang, Xin & Xu, Liang & Kou, Gang & Chevallier, Julien, 2023. "Trading, storage, or penalty? Uncovering firms' decision-making behavior in the Shanghai emissions trading scheme: Insights from agent-based modeling," Energy Economics, Elsevier, vol. 117(C).
    6. Lebeau, Alexis & Petitet, Marie & Quemin, Simon & Saguan, Marcelo, 2024. "Long-term issues with the Energy-Only Market design in the context of deep decarbonization," Energy Economics, Elsevier, vol. 132(C).
    7. Tao, Zhenmin & Moncada, Jorge Andres & Delarue, Erik, 2023. "Exploring the impact of boundedly rational power plant investment decision-making by applying prospect theory," Utilities Policy, Elsevier, vol. 82(C).
    8. Rode, David C. & Fischbeck, Paul S., 2018. "Reduced-form models for power market risk analysis," Applied Energy, Elsevier, vol. 228(C), pages 1640-1655.
    9. Zhang, Qi & Wu, Xifeng & Chen, Yu, 2022. "Is economic crisis an opportunity for realizing the low-carbon transition? A simulation study on the interaction between economic cycle and energy regulation policy," Energy Policy, Elsevier, vol. 168(C).
    10. Brito-Pereira, Paulo & Rodilla, Pablo & Mastropietro, Paolo & Batlle, Carlos, 2022. "Self-fulfilling or self-destroying prophecy? The relevance of de-rating factors in modern capacity mechanisms," Applied Energy, Elsevier, vol. 314(C).
    11. Tao, Zhenmin & Moncada, Jorge Andrés & Poncelet, Kris & Delarue, Erik, 2021. "Review and analysis of investment decision making algorithms in long-term agent-based electric power system simulation models," Renewable and Sustainable Energy Reviews, Elsevier, vol. 136(C).
    12. Tan, Qinliang & Han, Jian & Liu, Yuan, 2023. "Examining the synergistic diffusion process of carbon capture and renewable energy generation technologies under market environment: A multi-agent simulation analysis," Energy, Elsevier, vol. 282(C).
    13. Zhou, Xianyang & Zhou, Dequn & Ding, Hao & Zhao, Siqi & Wang, Qunwei, 2023. "Low-carbon transition of China's provincial power sector under renewable portfolio standards and carbon cap," Energy, Elsevier, vol. 283(C).
    14. Han, Jiangbei & Liu, Chengxi, 2023. "Performance evaluation of SSCI damping controller based on the elastic energy equivalent system," Applied Energy, Elsevier, vol. 331(C).
    15. Taylor, David D.J. & Layurova, Mariya & Vogel, David S. & Slocum, Alexander H., 2019. "Black into green: A BIG opportunity for North Dakota’s oil and gas producers," Applied Energy, Elsevier, vol. 242(C), pages 1189-1197.
    16. Xia, S.W. & Bu, S.Q. & Zhang, X. & Xu, Y. & Zhou, B. & Zhu, J.B., 2018. "Model reduction strategy of doubly-fed induction generator-based wind farms for power system small-signal rotor angle stability analysis," Applied Energy, Elsevier, vol. 222(C), pages 608-620.
    17. Frew, Bethany & Bashar Anwar, Muhammad & Dalvi, Sourabh & Brooks, Adria, 2023. "The interaction of wholesale electricity market structures under futures with decarbonization policy goals: A complexity conundrum," Applied Energy, Elsevier, vol. 339(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mingming Zhang & Dequn Zhou & Hao Ding & Jingliang Jin, 2016. "Biomass Power Generation Investment in China: A Real Options Evaluation," Sustainability, MDPI, vol. 8(6), pages 1-22, June.
    2. Tan, Qinliang & Han, Jian & Liu, Yuan, 2023. "Examining the synergistic diffusion process of carbon capture and renewable energy generation technologies under market environment: A multi-agent simulation analysis," Energy, Elsevier, vol. 282(C).
    3. Koltsaklis, Nikolaos E. & Dagoumas, Athanasios S., 2018. "State-of-the-art generation expansion planning: A review," Applied Energy, Elsevier, vol. 230(C), pages 563-589.
    4. Mu, Yaqian & Wang, Can & Cai, Wenjia, 2018. "The economic impact of China's INDC: Distinguishing the roles of the renewable energy quota and the carbon market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P2), pages 2955-2966.
    5. Junjun Zheng & Mingmiao Yang & Gang Ma & Qian Xu & Yujie He, 2020. "Multi-Agents-Based Modeling and Simulation for Carbon Permits Trading in China: A Regional Development Perspective," IJERPH, MDPI, vol. 17(1), pages 1-20, January.
    6. Yi, Bo-Wen & Xu, Jin-Hua & Fan, Ying, 2016. "Inter-regional power grid planning up to 2030 in China considering renewable energy development and regional pollutant control: A multi-region bottom-up optimization model," Applied Energy, Elsevier, vol. 184(C), pages 641-658.
    7. Zhang, M.M. & Wang, Qunwei & Zhou, Dequn & Ding, H., 2019. "Evaluating uncertain investment decisions in low-carbon transition toward renewable energy," Applied Energy, Elsevier, vol. 240(C), pages 1049-1060.
    8. Jiang, Jingjing & Ye, Bin & Liu, Junguo, 2019. "Peak of CO2 emissions in various sectors and provinces of China: Recent progress and avenues for further research," Renewable and Sustainable Energy Reviews, Elsevier, vol. 112(C), pages 813-833.
    9. Zhang, Xinhua & Gan, Dongmei & Wang, Yali & Liu, Yu & Ge, Jiali & Xie, Rui, 2020. "The impact of price and revenue floors on carbon emission reduction investment by coal-fired power plants," Technological Forecasting and Social Change, Elsevier, vol. 154(C).
    10. Wei, Yigang & Liang, Xin & Xu, Liang & Kou, Gang & Chevallier, Julien, 2023. "Trading, storage, or penalty? Uncovering firms' decision-making behavior in the Shanghai emissions trading scheme: Insights from agent-based modeling," Energy Economics, Elsevier, vol. 117(C).
    11. Sen Guo & Wenyue Zhang & Xiao Gao, 2020. "Business Risk Evaluation of Electricity Retail Company in China Using a Hybrid MCDM Method," Sustainability, MDPI, vol. 12(5), pages 1-21, March.
    12. Tang, Ling & Wang, Haohan & Li, Ling & Yang, Kaitong & Mi, Zhifu, 2020. "Quantitative models in emission trading system research: A literature review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 132(C).
    13. Hui, Jingxuan & Cai, Wenjia & Wang, Can & Ye, Minhua, 2017. "Analyzing the penetration barriers of clean generation technologies in China’s power sector using a multi-region optimization model," Applied Energy, Elsevier, vol. 185(P2), pages 1809-1820.
    14. Foramitti, Joël & Savin, Ivan & van den Bergh, Jeroen C.J.M., 2021. "Emission tax vs. permit trading under bounded rationality and dynamic markets," Energy Policy, Elsevier, vol. 148(PB).
    15. Xiao, Jin & Li, Guohao & Xie, Ling & Wang, Shouyang & Yu, Lean, 2021. "Decarbonizing China's power sector by 2030 with consideration of technological progress and cross-regional power transmission," Energy Policy, Elsevier, vol. 150(C).
    16. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Liu, G.Q., 2016. "Optimal feed-in tariff for solar photovoltaic power generation in China: A real options analysis," Energy Policy, Elsevier, vol. 97(C), pages 181-192.
    17. Jiang, Suqin & Chen, Zun & Shan, Li & Chen, Xinyu & Wang, Haikun, 2017. "Committed CO2 emissions of China's coal-fired power generators from 1993 to 2013," Energy Policy, Elsevier, vol. 104(C), pages 295-302.
    18. Li, Ying & Lukszo, Zofia & Weijnen, Margot, 2016. "The impact of inter-regional transmission grid expansion on China’s power sector decarbonization," Applied Energy, Elsevier, vol. 183(C), pages 853-873.
    19. Liu, Xi & Du, Huibin & Brown, Marilyn A. & Zuo, Jian & Zhang, Ning & Rong, Qian & Mao, Guozhu, 2018. "Low-carbon technology diffusion in the decarbonization of the power sector: Policy implications," Energy Policy, Elsevier, vol. 116(C), pages 344-356.
    20. Feng Liu & Tao Lv & Yuan Meng & Xiaoran Hou & Jie Xu & Xu Deng, 2022. "Low-Carbon Transition Paths of Coal Power in China’s Provinces under the Context of the Carbon Trading Scheme," Sustainability, MDPI, vol. 14(15), pages 1-14, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:217:y:2018:i:c:p:440-455. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.