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Economics of High-Temperature Nuclear Reactors for Industrial Cogeneration

Author

Listed:
  • Hampe, Jona

    (Technology & Innovation / Technology Scouting)

  • Madlener, Reinhard

    (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

Abstract

The EU Emissions Trading Scheme challenges the cost-competitiveness of energy-intensive industries in Europe, and induces them to search for low-carbon alternatives for their process heat requirements, such as cogeneration or the employment of nuclear power plants. The high-temperature nuclear reactor (HTR) is a technology option that combines these two aspects. In this paper, the economic potential of using HTRs for cogeneration of industrial process heat and electricity is studied. We show that a reference case HTR can deliver cost-competitive process heat at temperatures of 200°C and above, rendering the chemical and pulp & paper industry as potential candidates. The economic evaluation of the reference case yields a positive net present value of € 304 million and an internal rate of return of 12.3%, which is above the cost of capital. Real options analysis is employed to account for the uncertain environment and the resulting managerial flexibilities of the project. A real option model for optimal investment timing (Pindyck, 1991) is adapted to HTRs for industrial cogeneration. The value of the option to invest in a HTR is determined at € 667 million and the electricity price threshold for an optimal investment at 78.97 €/MWh. Hence, the option to invest in a HTR represents a significant value for a utility. Yet, the investment should be delayed until the electricity price reaches the threshold value. We also propose a model to calculate the option to switch between two different modes of operation that is based on Kulatilaka and Trigeorgis (1994) but builds on a time-continuous price path instead of a binomial lattice. For the reference case, the option to switch the power plant’s output from cogeneration to electricity only is found to be worth € 85 million.

Suggested Citation

  • Hampe, Jona & Madlener, Reinhard, 2012. "Economics of High-Temperature Nuclear Reactors for Industrial Cogeneration," FCN Working Papers 10/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    • Handle: RePEc:ris:fcnwpa:2012_010
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    References listed on IDEAS

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    Cited by:

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    2. Rohlfs, Wilko & Madlener, Reinhard, 2013. "Challenges in the Evaluation of Ultra-Long-Lived Projects: Risk Premia for Projects with Eternal Returns or Costs," FCN Working Papers 13/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    3. Harmsen - van Hout, Marjolein & Ghosh, Gaurav & Madlener, Reinhard, 2013. "The Impact of Green Framing on Consumers’ Valuations of Energy-Saving Measures," FCN Working Papers 7/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
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    6. Schröders, Sarah & Allelein, Hans-Josef, 2018. "Energy economic evaluation of process heat supply by solar tower and high temperature reactor based on the ammonia production process," Applied Energy, Elsevier, vol. 212(C), pages 622-639.

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    More about this item

    Keywords

    real option; high-temperature reactor; HTR; cogeneration; CHP;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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