Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices?

High fossil fuel prices have rekindled interest in nuclear power. This paper identifies specific characteristics making nuclear power unattractive to merchant generators in liberalized electricity markets, and argues that non-fossil fuel technologies have an overlooked 'option value' given...

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Bibliographic Details
Published inThe Energy journal (Cambridge, Mass.) Vol. 27; no. 4; pp. 1 - 23
Main Authors Roques, Fabien A., Nuttall, William J., Newbery, David M., de Neufville, Richard, Connors, Stephen
Format Journal Article
LanguageEnglish
Published Los Angeles, CA Energy Economics Education Foundation, Inc 01.10.2006
SAGE Publications
International Association for Energy Economics
Sage Publications Ltd. (UK)
SeriesThe Energy Journal
Subjects
Applied sciences
Capital costs
Carbon
Carbon pricing
Economic data
Electric energy
Electricity
Electricity generation
Energy
Energy economics
Energy minerals
Energy policy
Evaluation
Exact sciences and technology
Financial investments
Forecasts and trends
Fossil fuels
General, economic and professional studies
Industry forecasts
Investment plans
Investment risk
Investments
Liberalization
Nuclear energy
Nuclear fuels
Nuclear power
Nuclear power plants
Petroleum industry
Price increases
Prices
Prices and rates
Studies
Trade liberalization
United States
Nuclear energy
electricity
option value
economic analysis
Fuel mix diversification
stochastic optimization
Economic analysis
Economic value
Financing
Technicoeconomic study
Open market
Financial option
Electric power production
Cost analysis
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Summary:High fossil fuel prices have rekindled interest in nuclear power. This paper identifies specific characteristics making nuclear power unattractive to merchant generators in liberalized electricity markets, and argues that non-fossil fuel technologies have an overlooked 'option value' given fuel and carbon price uncertainty. Stochastic optimization estimates the company option value of keeping open the choice between nuclear and gas technologies. The merchant option value decreases sharply as the correlation between electricity, gas, and carbon prices rises, casting doubt on whether merchant investors have adequate incentives to choose socially efficient diversification in liberalized electricity markets.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0195-6574
1944-9089
DOI:10.5547/ISSN0195-6574-EJ-Vol27-No4-1