Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?
Fabien Roques (),
William Nuttall (),
David M Newbery () and
Richard de Neufville
Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
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.
Keywords: Nuclear economics; stochastic optimisation; fuel-mix; diversification. (search for similar items in EconPapers)
JEL-codes: C15 C61 L52 L94 (search for similar items in EconPapers)
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Journal Article: Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices? (2006)
Working Paper: Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0555
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