Experience with valuation methods for the creation of real options enabling diversity of nuclear fuel supply

Abstract

ABSTRACT Defense in depth is a pillar of nuclear power plant design and it also plays an important factor for the reliability of fuel supply. While most safety systems of a classical light water reactor usually remain unchanged for many years of operation the first and second fission product barrier – the fuel and the cladding – are regularly exchanged by loading fresh fuel assemblies into the reactor core. We review our experience of achieving high reliability in fuel supply by means of real options. The required activities for option creation are explained in detail. Real option valuation is known to be more difficult than financial option valuation and we review the valuation metrics which we found most useful. Due to the incompleteness and illiquidity of the considered option market and due to the barriers of realizing arbitrage, lower and upper bounds are easier to determine than exact option values. Notwithstanding these constraints using concepts based on volatility and stochastic processes in our experience is good practice to avoid naked bets on future power plant availability and avoids the pitfalls of static forecasts.