Economics of High-Temperature Nuclear Reactors for Industrial Cogeneration
FCN Working Paper No. 10/2012
50 Pages Posted: 6 Sep 2014
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: Suggested Citation