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

Author

Listed:
  • Fabien A Roques

    (Judge Business School, University of Cambridge)

  • William J. Nuttall

    (Judge Business School, University of Cambridge)

  • David M. Newbery

    (Faculty of Economics, University of Cambridge)

  • Richard de Neufville

    (Engineering Systems Division, Massachusetts Institute of Technology)

Abstract

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Fabien A Roques & William J. Nuttall & David M. Newbery & Richard de Neufville, 2005. "Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices?," Working Papers EPRG 0509, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg0509
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    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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