In this study, a policy benefit real options model was developed to evaluate biomass power production investment in China. A method based on the cumulative probability was proposed using binomial decision tree calculations for the exercising of options in order to evaluate the optimal investment timing. Two scenarios were analyzed to identify the optimal investment strategy with/without the consideration of revenue from certified emission reduction (CER). Uncertainties in straw purchased price, government incentives, and technological improvements were considered. The results showed that it was not optimal for immediate investment in biomass power production in China. Given full government subsidy, the thresholds of straw purchased price for scenarios 1 and 2 are 213.55 and 218.87 RMB/ton, respectively, while the current straw purchased price in Chinese market is 220 RMB/ton. The investment of biomass power production would be executed at 2022 and 2028 with/without the consideration of revenue from CER in the current situation in China if there are no government incentive to encourage motivation, respectively. The conclusion could provide useful information for power enterprise decision-makers on whether and when to invest a biomass power production in China in an uncertain environment. (C) 2014 Elsevier Ltd. All rights reserved.