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How to Proceed with the Thorium Nuclear Technology: a Real Options Analysis

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Author Info
Siddiqui, Afzal
Fleten, Stein-Erik
Abstract

The advantage of thorium-fuelled nuclear power is that it limits the potential for spreading weapons-grade material and produces less long-lived nuclear waste than existing uranium-fuelled plants. However, there are a number of technical challenges that need to be overcome, and the current costs of initiating a thorium fuel cycle would be very high. We analyse how a government may proceed with a staged development of meeting electricity demand as fossil fuel sources are being phased out. The thorium technology is one possibility, where one would start a major research and development program as an intermediate step. Alternatively, the government could choose to deploy an existing renewable energy technology, and using the real options framework, we compare the two projects to provide policy implications on how one might proceed.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7355.

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Date of creation: 28 Feb 2008
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Handle: RePEc:pra:mprapa:7355

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Related research
Keywords: Real options Renewable electricity technologies Electricity markets Stochastic price R&D

Find related papers by JEL classification:
Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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References listed on IDEAS
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  1. Dixit, Avinash, 1993. "Choosing among alternative discrete investment projects under uncertainty," Economics Letters, Elsevier, vol. 41(3), pages 265-268. [Downloadable!] (restricted)
  2. Saman Majd & Robert S. Pindyck, 1989. "The Learning Curve and Optimal Production under Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 331-343, Autumn. [Downloadable!] (restricted)
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  3. M. L. Weitzman & K. Roberts, 1979. "Funding Criteria for Research, Development and Exploration Projects," Working papers 234, Massachusetts Institute of Technology (MIT), Department of Economics.
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  4. Davis, Graham A. & Owens, Brandon, 2003. "Optimizing the level of renewable electric R&D expenditures using real options analysis," Energy Policy, Elsevier, vol. 31(15), pages 1589-1608, December. [Downloadable!] (restricted)
  5. Pindyck, Robert S., 1993. "Investments of uncertain cost," Journal of Financial Economics, Elsevier, vol. 34(1), pages 53-76, August. [Downloadable!] (restricted)
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  6. Jean-Paul Décamps & Thomas Mariotti & Stéphane Villeneuve, 2006. "Irreversible investment in alternative projects," Economic Theory, Springer, vol. 28(2), pages 425-448, 06. [Downloadable!] (restricted)
  7. Gollier, Christian & Proult, David & Thais, Francoise & Walgenwitz, Gilles, 2005. "Choice of nuclear power investments under price uncertainty: Valuing modularity," Energy Economics, Elsevier, vol. 27(4), pages 667-685, July. [Downloadable!] (restricted)
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