Gas Fired Power Plant Investments with CO2 Capture

We analyze investment in a gas fired power plant. Investment valuation is based on prices of long term prices of energy forward contracts, taken from the Scandinavian electricity market and the UK natural gas market. The plant�s operating flexibility and the investment delay opportunity under gas and electricity price uncertainty is taken into account. The analysis indicates that the power plant investment should be delayed. Further, we analyse an option to install CO2 capture technology, under a regime with trade in CO2 emission quotas. CO2 capture equipment is very costly and we find that high subsidies are required to entice the investors to install it, even when the captured CO2 can be sold for enhanced oil recovery.