Real Option Analysis of Stranded Coal Power Assets in China Considering Carbon Pricing

China has set the ambitious carbon neutrality goal and launched its national carbon market. However, it may further increase the risk of stranded coal power asset as its energy structure heavily relies on coal power. This research proposed a Least Square Monte Carlo (LSMC) based real-option (RO) model to quantify the national stranded asset risk of coal plants in China. The results show that China's potential stranded coal power asset value is around 1.4-1.7 trillion yuan. Various carbon pricing mechanisms have limited effects on the changes of total stranded coal power asset, but an aggressive carbon pricing approach may result in a concentrated and intense release of stranded assets between 2031 and 2040. This could significantly damage the regional financial stability, especially in economically weaker provinces such as Xinjiang, Inner Mongolia, and Shanxi.