Coal-fired power plants may enjoy a significant advantage relative to gas plants in terms of cheaper fuel cost. Still, this advantage may erode or even turn into disadvantage depending on CO2 emission allowance price. This price will presumably rise in both the Kyoto Protocol commitment period...

We analyze investments in gas-fired power plants under stochastic electricity and natural gas prices. A simple but realistic two-factor model is used for price processes, enabling analysis of the value of operating flexibility, the opportunity to abandon the capital equipment, as well as finding...