Economics of High-Temperature Nuclear Reactors for Industrial Cogeneration

  Two-dimensional lognormal probability distribution for different points in time (Source: Hampe and Madlener, 2012)

In this research project we investigate the economic feasibilityof providing heat and power to energy-intensive industries by utility-run high-temperature reactors operated as cogeneration plants that can serve as alternatives to the conventional oil- or gas-fired boilers.

In the context of different climate policy regimes, and increasingly volatile oil and gas prices, it is sometimes very challenging for energy-intensive industries (such as iron & steel, refineries, chemicals etc.) to maintain their competitiveness. Therefore, these companies are looking for alternatives to the widely used gas- or oil-fired boilers to produce the heat energy required for their processes. One promising possibility is the introduction of nuclear high temperature cogeneration. As one possible business model, a utility can supply electricity and process heat services, so that such energy-intensive companies do neither need to deal themselves with the energy supply system nor to buy CO₂ permits. In addition, the utility can feed any spare electricity into the grid. To investigate the potential of such an application, this model-based research project investigates the economics of high-temperature reactors (HTR) for nuclear cogeneration.

In this project, a business model for HTR cogeneration from the perspective of a utility is developed and investigated, following the conceptual framework introduced by Chesborough and Rosenbloom (Industrial and Corporate Change, 2002, 11(3): 529-555). The specific focus of the business model concentrates on the economic evaluation of HTR cogeneration. To this end, we perform a standard discounted cash flow (DCF) analyses and internal rate of return (IRR) calculations as a benchmark, topped by a real options analysis (ROA) that is used to value the flexibility the utility has in its decisions to react to changing market conditions. In particular, we first determine a price threshold for the investment by valuing the option to delay the investment. In a second step, the option to switch the power plant’s output from cogeneration to electricity-only mode is valuated. Subsequently, a sensitivity analysis is performed to determine the key drivers for the investment decision, enabling the utility to monitor (or even influence) these as closely as possible.

References

Hampe J., Madlener R. (2012). Economics of High-Temperature Nuclear Reactors for Industrial Cogeneration, FCN Working Paper No. 10/2012, Institute for Future Energy Consumer Needs and Behavior, RWTH Aachen University, October.