C-Energy's Red Hill Plant: Meeting the So2 Challenge

8 Pages Posted: 23 Jun 2009

See all articles by Anton Ovchinnikov

Anton Ovchinnikov

Smith School of Business - Queen's University; INSEAD - Decision Sciences

Abstract

This case is suitable for graduate-level quantitative analysis, business and government, environment and sustainability, and global economics courses. Students must consider the tradeoffs between continuing to run an old coal-burning plant and purchasing emissions allowances (EAs) versus upgrading to emissions-reducing wet or dry scrubbers. Reducing emissions creates the possibility of selling the plant's surplus EAs (which are likely to increase in price). Choosing a wet or dry scrubber requires considering installation cost and construction time, variable cost, and SO2 removal efficiency. Ideally, the investment should pay back over time, but management believes some net investment could also be justified. For that, however, complete analyses from both economic and environmental perspectives are required. A supplemental spreadsheet is available to accompany the case (UVA-QA-0726X).

Excerpt

UVA-QA-0726

Rev. Feb. 18, 2015

C-ENERGY'S RED HILL PLANT: MEETING THE SO2 CHALLENGE

“If there ever would be a time to tackle pollution control at the Red Hill plant, this is it,” thought Jenny Becker, head of the electric power generation division of c-Energy (CE)—a major North American power company. “Sulfur dioxide (SO2) emissions alone cost us about $ 6.4million per year in emission allowances. We could spend $ 6 million for something more useful, including cleaning up the environment.”

Red Hill was an old coal-burning power plant, and Becker had for some time been thinking of selling it, and instead investing in newer, cleaner, and more efficient oil- and gas-burning electricity generation plants. As a result, CE's strategy had been simply to purchase emission allowances (EAs), rather than institute capital-intensive pollution-reducing initiatives.

Recently, however, Becker's view on Red Hill had changed. The prices of oil and natural gas had surged dramatically, increasing the relative attractiveness of coal. Coal was mined domestically within the United States, whereas oil and gas were largely imported. And if the U.S. dollar remained weak, coal seemed an even better choice. “They even have ads for coal on CNN,” Becker thought.

. . .

Keywords: decision analysis, statistics, regression simulation, crystal ball, real options, spreadsheet, environment sustainability, ethics, coal, oil, gas, technology, pollution, CO2, SO2, carbon solfur dioxide

Suggested Citation

Ovchinnikov, Anton, C-Energy's Red Hill Plant: Meeting the So2 Challenge. Darden Case No. UVA-QA-0726, Available at SSRN: https://ssrn.com/abstract=1423311 or http://dx.doi.org/10.2139/ssrn.1423311

Anton Ovchinnikov (Contact Author)

Smith School of Business - Queen's University ( email )

143 Union Str. West
Kingston, ON K7L3N6
Canada

INSEAD - Decision Sciences ( email )

United States

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