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Nuclear hydrogen: An assessment of product flexibility and market viability

  • Botterud, Audun
  • Yildiz, Bilge
  • Conzelmann, Guenter
  • Petri, Mark C.
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    Nuclear energy has the potential to play an important role in the future energy system as a large-scale source of hydrogen without greenhouse gas emissions. Thus far, economic studies of nuclear hydrogen tend to focus on the levelized cost of hydrogen without accounting for the risks and uncertainties that potential investors would face. We present a financial model based on real options theory to assess the profitability of different nuclear hydrogen production technologies in evolving electricity and hydrogen markets. The model uses Monte Carlo simulations to represent uncertainty in future hydrogen and electricity prices. It computes the expected value and the distribution of discounted profits from nuclear hydrogen production plants. Moreover, the model quantifies the value of the option to switch between hydrogen and electricity production, depending on what is more profitable to sell. We use the model to analyze the market viability of four potential nuclear hydrogen technologies and conclude that flexibility in output product is likely to add significant economic value for an investor in nuclear hydrogen. This should be taken into account in the development phase of nuclear hydrogen technologies.

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    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 36 (2008)
    Issue (Month): 10 (October)
    Pages: 3961-3973

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    Handle: RePEc:eee:enepol:v:36:y:2008:i:10:p:3961-3973
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    1. Penner, S.S., 2006. "Steps toward the hydrogen economy," Energy, Elsevier, vol. 31(1), pages 33-43.
    2. Geoffrey Rothwell, 2006. "A Real Options Approach to Evaluating New Nuclear Power Plants," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 87-54.
    3. Eduardo Schwartz & James E. Smith, 2000. "Short-Term Variations and Long-Term Dynamics in Commodity Prices," Management Science, INFORMS, vol. 46(7), pages 893-911, July.
    4. Karl Magnus Maribu & Stein-Erik Fleten, 2008. "Combined Heat and Power in Commercial Buildings: Investment and Risk Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 123-150.
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