Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?
High fossil fuel prices have rekindled interest in nuclear power. This paper identifies specific nuclear characteristics making it unattractive to merchant generators in liberalised electricity markets, and argues that non-fossil fuel technologies have an overlooked ‘option value’ given fuel and carbon price uncertainty. Stochastic optimisation estimates the company option value of keeping open the choice between nuclear and gas technologies. This option value decreases sharply as the correlation between electricity, gas, and carbon prices rises, casting doubt on whether private investors’ fuel-mix diversification incentives in electricity markets are aligned with the social value of a diverse fuel-mix.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frayer, Julia & Uludere, Nazli Z., 2001. "What Is It Worth? Application of Real Options Theory to the Valuation of Generation Assets," The Electricity Journal, Elsevier, vol. 14(8), pages 40-51, October.
- Pindyck, Robert S., 1993.
"Investments of uncertain cost,"
Journal of Financial Economics,
Elsevier, vol. 34(1), pages 53-76, August.
- Robert S. Pindyck, 1992. "Investments of Uncertain Cost," NBER Working Papers 4175, National Bureau of Economic Research, Inc.
- Awerbuch, Shimon & Sauter, Raphael, 2006. "Exploiting the oil-GDP effect to support renewables deployment," Energy Policy, Elsevier, vol. 34(17), pages 2805-2819, November.
- Shimon Awerbuch & Raphael Sauter, 2005. "Exploiting the Oil-GDP Effect to Support Renewables Deployment," SPRU Working Paper Series 129, SPRU - Science and Technology Policy Research, University of Sussex.
- 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.
- Gollier, Christian & Proult, David & Thais, Françoise & Walgenwitz, Gilles, 2004. "Choice of Nuclear Power Investments ander Price Uncertainty: Valuing Modularity," IDEI Working Papers 270, Institut d'Économie Industrielle (IDEI), Toulouse.
- Gollier, Christian, 2004. "Choice of Nuclear Power Investments under Price Uncertainty: Valuing Modularity," IDEI Working Papers 287, Institut d'Économie Industrielle (IDEI), Toulouse.
- Murto, Pauli & Nese, Gjermund, 2002. "Input price risk and optimal timing of energy investment: choice between fossil- and biofuels," Working Papers in Economics 15/02, University of Bergen, Department of Economics.
- Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
- Li, Ying & Flynn, Peter C., 2004. "Deregulated power prices: comparison of volatility," Energy Policy, Elsevier, vol. 32(14), pages 1591-1601, September.
- Bar-Ilan, Avner & Strange, William C, 1996. "Investment Lags," American Economic Review, American Economic Association, vol. 86(3), pages 610-622, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0555. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jake Dyer)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.