Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?
Roques, Fabien A.
Nuttall, William J.
de Neufville, Richard
Cambridge Working Papers in Economics
Faculty of Economics
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Roques, F. A., Nuttall, W. J., Newbery, D., & de Neufville, R. (2006). Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?. https://doi.org/10.17863/CAM.5051
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 Ã Â¢Ã Â Ã Â option valueÃ Â¢Ã Â Ã Â 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 investorsÃ Â¢Ã Â Ã Â fuel-mix diversification incentives in electricity markets are aligned with the social value of a diverse fuel-mix.
stochastic optimisation, fuel-mix, diversification, Classification-JEL: C15, C61, L52, L94, Nuclear economics
This record's DOI: https://doi.org/10.17863/CAM.5051
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