Real options valuation of fusion energy R&D programme

Real options valuation of fusion energy R&D programme

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Article ID: iaor20108353
Volume: 39
Issue: 1
Start Page Number: 116
End Page Number: 130
Publication Date: Jan 2011
Journal: Energy Policy
Authors: ,
Keywords: simulation: applications
Abstract:

Real options analysis of fusion R&D, demonstration and deployment (RDDD) programme. ENPV of fusion RDDD programme is calculated using stochastic probabilistic simulation. Fusion RDDD programme exhibits substantial positive real options value: €245 billion. Fuzzy compound real option valuation method provides more robust results. This paper aims to perform a real options valuation of fusion energy R&D programme. Strategic value of thermonuclear fusion technology is estimated here based on the expected cash flows from construction and operation of fusion power plants and the real options value arising due to managerial flexibility and the underlying uncertainty. First, a basic investment option model of Black–Scholes type is being considered. Then, a fuzzy compound real R&D option model is elaborated, which reflects in a better way the multi‐stage nature of the programme and takes into account the imprecision of information as one of the components of the overall programme uncertainty. Two different strategies are compared: ‘Baseline’ corresponding to a relatively moderate pace of fusion research, development, demonstration and deployment activities vs. ‘Accelerated’ strategy, which assumes a rapid demonstration and massive deployment of fusion. The conclusions are drawn from the model calculations regarding the strategic value of fusion energy R&D and the advantages of accelerated development path.

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