Using real options to evaluate the flexibility in the deployment of SMR

Locatelli, Giorgio and Mancini, Mauro and Ruiz, Felipe and Solana, Pablo (2012) Using real options to evaluate the flexibility in the deployment of SMR. In: International Congress on Advances in Nuclear Power Plants 2012, 24 - 28 June 2012, Chicago, IL.

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Abstract

According to recent estimations the financial gap between Large Reactors (LR) and Small Medium Reactors (SMRs) seems not as huge as the economy of scale would suggest, so the SMRs are going to be important players of the worldwide nuclear renaissance. POLIMIs INCAS model has been developed to compare the investment in SMR with respect to LR. It provides the value of IRR (Internal Rate of Return), NPV (Net Present Value), LUEC (Levelised Unitary Electricity Cost), upfront investment, etc. The aim of this research is to integrate the actual INCAS model, based on discounted cash flows, with the real option theory to measure flexibility of the investor to expand, defer or abandon a nuclear project, under future uncertainties. The work compares the investment in a large nuclear power plant with a series of smaller, modular nuclear power plants on the same site. As a consequence it compares the benefits of the large power plant, coming from the economy of scale, to the benefit of the modular project (flexibility) concluding that managerial flexibility can be measured and used by an investor to face the investment risks.

Additional Information:According to recent estimations the financial gap between Large Reactors (LR) and Small Medium Reactors (SMRs) seems not as huge as the economy of scale would suggest, so the SMRs are going to be important players of the worldwide nuclear renaissance. POLIMIs INCAS model has been developed to compare the investment in SMR with respect to LR. It provides the value of IRR (Internal Rate of Return), NPV (Net Present Value), LUEC (Levelised Unitary Electricity Cost), upfront investment, etc. The aim of this research is to integrate the actual INCAS model, based on discounted cash flows, with the real option theory to measure flexibility of the investor to expand, defer or abandon a nuclear project, under future uncertainties. The work compares the investment in a large nuclear power plant with a series of smaller, modular nuclear power plants on the same site. As a consequence it compares the benefits of the large power plant, coming from the economy of scale, to the benefit of the modular project (flexibility) concluding that managerial flexibility can be measured and used by an investor to face the investment risks.
Keywords:Real Option, Small nuclear reactors, Investments, Nuclear power plants
Subjects:H Engineering > H100 General Engineering
Divisions:College of Science > School of Engineering
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ID Code:7213
Deposited On:08 Jan 2013 08:49

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