ECONOMIC VALUE OF R&D IN THE FIELD OF FAST REACTORS TAKING INTO ACCOUNT UNCERTAINTY ON THEIR COMPETITIVENESS: THE CASE OF FRANCE
DOI:
https://doi.org/10.15173/esr.v22i1.3306Keywords:
Real option, research, nuclearAbstract
In a context of mix signals regarding worldwide nuclear development, this paper aims at assessing the economic value of pursuing research in Generation IV fast reactors today, given that it would allow industrial deployment around 2040 in case of high uranium prices. Two key variables shall be considered as inputs for the assessment: the price of uranium and the overcost of Generation IV reactors compared with the previous generation. Our model is based on the “real options” theory which demonstrates that this value is positive and outweighs the risks associated with the competitiveness of Generation IV. It is quite simple but it clarifies and introduces important aspects of the field.
References
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Ramani S., Richard A. (1993) ‘Decision, Irreversibility and Flexibility: the Irreversibility Effect Re-examined,’ Theory and Decision 35, p. 259-276.
Reedman L., Graham P., Coombes U. (2006) ‘Using a Real-Options Approach to Model Technology Adoption Under Carbon Price Uncertainty: An Application to the Australian Electricity Generation Sector,’ Economic Record 82: Iss. Supplement s1, pp. S64–S73.
Roques F., Nuttall W., Newberry D., De Neufville R., Connors S. (2006) ‘Nuclear power: a Hedge against Uncertain Gas and Carbon Prices?,’ The Energy Journal 27 n°4, pp. 1-24.
Rothwell G. (2006) ‘A real options approach to evaluating new nuclear power plants,’ The Energy Journal 27, n°1, pp. 37-53.
Suchitra J.Y., Ramana M.V. (2011) ‘The costs of power: plutonium and the economics of India's prototype fast breeder reactor,’ Int. J. of Global Energy Issues 35, n°1, pp.1-23.
Siddiqui A.S., Marnay C., Wiser R.H. (2007) ‘Real options valuation of US federal renewable energy research, development, demonstration, and deployment,’ Energy Policy 35, pp. 265–279.
Takashima R, Siddiqui A.S., Nakada S. (2010) ‘Investment timing, capacity sizing, and technology choice of power plants,’ In: 14th annual international conference on real options, Italy.
Taverdet-Popiolek N., Mathonnière G. (2010) ‘Analyse économique de la valeur de la R&D dans le domaine des réacteurs rapides: analyse simplifiée et modélisation sous l’hypothèse d’une augmentation à terme du prix de l’uranium naturel,’ Revue de l’énergie 595, mai-juin.
Taverdet-Popiolek N. (2010) ‘Investissement dans une centrale électrique au charbon et contrainte CO2: que nous disent les modèles de décision dans le risque?,’ Revue de l’Energie 593, janvier-février.
Wang J., Hwang W.L. (2005) ‘A fuzzy set approach for R&D portfolio selection using a real options valuation model,’ Omega 35, pp. 247- 257.
Black F., Scholes M. (1973) ‘The Pricing of Options and Corporate Liabilities,’ Journal of Political Economy 81, May-June, pp. 637-654.
Barria C., Rudnick H. (2011) ‘Investment under uncertainty in power generation: integrated electricity prices modelling and real options approach,’ Latin America Transactions 9, pp. 785-792.
Bobtcheff C. (2006) ‘Essays in Investment Theory,’ PhD, Toulouse I University, 216 p.
Cardin M.A., de Neufville R. (2008) ‘A survey of state of the art methodologies and a framework for identifying and valuing flexible design opportunities in engineering systems,’ Working Paper, Massachusetts Institute of Technology, Cambridge.
Cardin M.A., Steer S.J., Nuttall W.J., Parks G.T., Gonçalves L.V.N. and de Neufville R. (2010a) ‘Minimizing the Cost of Innovative Nuclear Technology Through Flexibility: The Case of a Demonstration Accelerator-Driven Subcritical Reactor Park,” Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge.
Davis G., Owens B. (2003) ‘Optimizing the level of renewable electric R&D expenditures using real options analysis,’ Energy Policy 31, pp.1589–1608.
Epaulard A., Gallon S. (2001) ‘La valorisation du projet nucléaire EPR par la méthode des options réelles,’ Economie et Prévision 149(3), pp.29-50.
Fernandes B., Cunha J., Ferreira P. (2011) ‘The use of real options approach in energy sector investments,’ Renewable and Sustainable Energy Reviews 15: Iss. 9, pp.4491-4497.
Guillerminet M.L. (2002) ‘La décision d’investissement et son financement dans un environnement institutionnel en mutation: le cas d’un équipement électronucléaire,’ Les Cahiers du Creden 02.09.35.
Henry C. (1974a) ‘Option Value in the Economics of Irreplaceable Assets,’ Review of Economic Studies, Symposium on the economics of exhaustible resources, pp. 89-104.
Henry C. (1974b) ‘Investment Decision under Uncertainty: the Irreversible Effect,’ American Economic Review 64, pp. 1006-1012
Huchzermeier A., Loch C.H. (2001) ‘Project management under risk: using the real options approach to evaluate flexibility in R&D,’ Management Science 47 (1), pp. 85-101.
International Energy Agency and Nuclear Energy Agency (2014) Red Book Uranium: Resources, Production and Demand, OECD/NEA.
International Energy Agency and Nuclear Energy Agency (2013) Energy, Electricity & Nuclear Power Estimates for the Period up to 2050, OECD/NEA.
Ionescu O., Heraud J.A. (2011) ‘The radioactive waste disposal: the contribution of economic analysis,’ Energy Studies Review 18: Iss. 2, Article 1.
Ionescu O., Spaeter S. (2011) ‘Reversibility and switching options values in the geological disposal of radioactive waste,’ Real options 15th Annual International Conference, Turku, Finland.
Kahouli S. (2012) ‘The effects of uranium price fluctuations on production, exploration, expenditures and reserves: VAR approach,’ Energy Studies Review 19: Iss. 1, Article 3.
Khalfallah, M.H. (2009) ‘Long-term Capacity Adequacy in Electricity Markets: Reliability Contracts vs Capacity Obligations,’ Energy Studies Review 16: Iss. 2, Article 2.
Kjærland F. (2007) ‘A real option analysis of investments in hydropower - The case of Norway,’ Energy Policy 35, pp.5901–5908.
Kjærland F., Larsen B. (2009) ‘The value of operational flexibility by adding thermal to hydropower a real option approach,’ In: 9th annual real options international conference, Portugal and Spain.
Kumbaroglu G., Madlener R., Demirel M. (2006) ‘A real options evaluation model for the diffusion prospects of new renewable power generation technologies,’ Energy Economics 30, pp.1882–1908.
Landauro, I. 2015. ‘EDF Postpones Flamanville Nuclear Reactor Startup to 2018,’ Wall Street Journal, September 3, sec. Business.
Lee S.C., Shih L.H. (2010) ‘Renewable energy policy evaluation using real option model - The case of Taiwan,’ Energy Economics 32, S67–S78.
Lebègue D., Hirtzman Ph., Baumstark L. (2005) ‘Le prix du temps et la décision publique,’ Le Plan, La documentation française.
Liu G., Wen F., MacGill I. (2011) ‘Optimal timing for generation investment with uncertain emission mitigation policy,’ European Transactions on Electrical Power 21, pp. 1015–1027
Madlener R., Kumbaroglu G., Ediger V. (2005) ‘Modeling technology adoption as an irreversible investment under uncertainty: the case of the Turkish electricity supply industry,’ Energy Economics,27, pp. 139-163.
Madlener R., Stoverink S. (2011) ‘Power plant investments in the Turkish electricity sector: A real options approach taking into account market liberalization,’ Applied Energy 97, pp. 124-134.
Martinez-Ceseña E.A., Mutale J., Rivas-Dávalos F. (2013) ‘Real options theory applied to electricity generation projects: A review,’ Renewable and Sustainable Energy Reviews19, pp. 573-581.
Martinez-Ceseña E.A., Mutale J. (2012) ‘Wind Power Projects Planning Considering Real Options for the Wind Resource Assessment,’ Sustainable Energy, IEEE Transactions 3, no 1, pp.158-166.
Martinez-Ceseña E.A., Rivas Davalos F. (2011) ‘Evaluation of investments in electricity infrastructure using real options and multiobjective formulation,’ IEEE Latin America Transactions 9, pp. 767–773.
Martínez-Ceseña E.A., Mutale J. (2011) ‘Application of an advanced real options approach for renewable energy generation projects planning,’ Renewable and Sustainable Energy Reviews15: Iss. 4, pp. 2087-2094.
Martinez-Ceseña E.A., Mutale J. (2012) ‘Wind power projects planning considering real options for the wind resource assessment,’ IEEE Transactions on Sustainable Energy 3, pp. 158-166.
Merton R.C. (1973) ‘Theory of Rational Option Pricing,’ Bell Journal of Economics and Management Science, The RAND Corporation 4, no1, pp.141-183.
MIT (2012) ‘The future of nuclear power after Fukushima,’ MIT Publication
Ostertag K., Llerena P., Richard A. (2004) ‘Option Valuation for energy issues, Institut Systemtechnik und Innovationsforschung,’ Fraunhofer IRB Verlag, 179 p.
Perlitz M., Peske T., Schrank R. (2002) ‘Real options valuation: the new frontier in R&D project evaluation?,’ R&D Management 29: Iss. 3, pp. 255-270.
Ramani S., Richard A. (1993) ‘Decision, Irreversibility and Flexibility: the Irreversibility Effect Re-examined,’ Theory and Decision 35, p. 259-276.
Reedman L., Graham P., Coombes U. (2006) ‘Using a Real-Options Approach to Model Technology Adoption Under Carbon Price Uncertainty: An Application to the Australian Electricity Generation Sector,’ Economic Record 82: Iss. Supplement s1, pp. S64–S73.
Roques F., Nuttall W., Newberry D., De Neufville R., Connors S. (2006) ‘Nuclear power: a Hedge against Uncertain Gas and Carbon Prices?,’ The Energy Journal 27 n°4, pp. 1-24.
Rothwell G. (2006) ‘A real options approach to evaluating new nuclear power plants,’ The Energy Journal 27, n°1, pp. 37-53.
Suchitra J.Y., Ramana M.V. (2011) ‘The costs of power: plutonium and the economics of India's prototype fast breeder reactor,’ Int. J. of Global Energy Issues 35, n°1, pp.1-23.
Siddiqui A.S., Marnay C., Wiser R.H. (2007) ‘Real options valuation of US federal renewable energy research, development, demonstration, and deployment,’ Energy Policy 35, pp. 265–279.
Takashima R, Siddiqui A.S., Nakada S. (2010) ‘Investment timing, capacity sizing, and technology choice of power plants,’ In: 14th annual international conference on real options, Italy.
Taverdet-Popiolek N., Mathonnière G. (2010) ‘Analyse économique de la valeur de la R&D dans le domaine des réacteurs rapides: analyse simplifiée et modélisation sous l’hypothèse d’une augmentation à terme du prix de l’uranium naturel,’ Revue de l’énergie 595, mai-juin.
Taverdet-Popiolek N. (2010) ‘Investissement dans une centrale électrique au charbon et contrainte CO2: que nous disent les modèles de décision dans le risque?,’ Revue de l’Energie 593, janvier-février.
Wang J., Hwang W.L. (2005) ‘A fuzzy set approach for R&D portfolio selection using a real options valuation model,’ Omega 35, pp. 247- 257.
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