Uncertainty, Policy, and the Risk of New Nuclear Build—a Real Options Approach
Date
2010-04-30
Author
Advisor
Patino-Echeverri, Dalia
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Abstract
The United States has recently seen renewed interest in nuclear power, what is called
the Nuclear Renaissance. However, the new licensing processes are untested and the
new reactor designs have never been constructed on US soil. Analyzing the history
of US nuclear development demonstrates that plants face considerable risk from construction
uncertainties, public intervention in the licensing process, and project mismanagement.
When these unknowns are coupled with the industry’s poor cost track record, the resulting
set of uncertainties and risks may cause investors to be wary of pursuing new nuclear
projects. Real Options valuation was used to assess how the risks associated with
the uncertainties in the environment for nuclear power could impact the economics
of new plants. To value a new nuclear power plant a decision model was developed incorporating
construction, regulatory, and operational uncertainties along with an option to abandon
project development. Various policy and uncertainty scenarios were modeled and a
conservative policy goal was developed as an achievable end point for the current
levels of subsidy. The results suggest that without subsidy, the first new plants
in the United States are economically unattractive in liberalized electricity markets.
Subsidized plants have positive investment value, but this value is still marginal.
However, cost reductions from standardization and learning could add between $200
and $600 per kilowatt in project value. Additionally, alternative incentive policies
and market-based greenhouse gas regulations both considerably improve the economics
of new nuclear plants.
Type
Master's projectPermalink
https://hdl.handle.net/10161/2212Citation
O'Connor, Patrick (2010). Uncertainty, Policy, and the Risk of New Nuclear Build—a Real Options Approach. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/2212.Collections
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