Economics of High-Temperature Nuclear Reactors for Industrial Cogeneration

FCN Working Paper No. 10/2012

50 Pages Posted: 6 Sep 2014

See all articles by Jona Hampe

Jona Hampe


Reinhard Madlener

RWTH Aachen University; Norwegian University of Science and Technology (NTNU)

Date Written: October 2012


The EU Emissions Trading Scheme challenges the cost-competitiveness of energy-intensive industries in Europe, and induces them to search for low-carbon alternatives for their process heat requirements, such as cogeneration or the employment of nuclear power plants. The high-temperature nuclear reactor (HTR) is a technology option that combines these two aspects. In this paper, the economic potential of using HTRs for cogeneration of industrial process heat and electricity is studied. We show that a reference case HTR can deliver cost-competitive process heat at temperatures of 200°C and above, rendering the chemical and pulp & paper industry as potential candidates. The economic evaluation of the reference case yields a positive net present value of € 304 million and an internal rate of return of 12.3%, which is above the cost of capital. Real options analysis is employed to account for the uncertain environment and the resulting managerial flexibilities of the project. A real option model for optimal investment timing (Pindyck, 1991) is adapted to HTRs for industrial cogeneration. The value of the option to invest in a HTR is determined at € 667 million and the electricity price threshold for an optimal investment at 78.97 €/MWh. Hence, the option to invest in a HTR represents a significant value for a utility. Yet, the investment should be delayed until the electricity price reaches the threshold value. We also propose a model to calculate the option to switch between two different modes of operation that is based on Kulatilaka and Trigeorgis (1994) but builds on a time-continuous price path instead of a binomial lattice. For the reference case, the option to switch the power plant’s output from cogeneration to electricity only is found to be worth € 85 million.

Keywords: real option, high-temperature reactor, HTR, cogeneration, CHP

JEL Classification: D12, Q48

Suggested Citation

Hampe, Jona and Madlener, Reinhard, Economics of High-Temperature Nuclear Reactors for Industrial Cogeneration (October 2012). FCN Working Paper No. 10/2012, Available at SSRN: or

Jona Hampe (Contact Author)

E.ON AG ( email )

Postfach 1475
Landshut, 84001

Reinhard Madlener

RWTH Aachen University ( email )

School of Business and Economics / E.ON ERC
Mathieustraße 10
Aachen, 52074
+49 241 80 49 820 (Phone)
+49 241 80 49 829 (Fax)


Norwegian University of Science and Technology (NTNU) ( email )

Trondheim NO-7491, 7491

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