IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v113y2014icp615-621.html
   My bibliography  Save this article

Hedging electricity price volatility using nuclear power

Author

Listed:
  • Mari, Carlo

Abstract

The analysis presented in this paper aims to put in some evidence the role of nuclear power as hedging asset against the volatility of electricity prices. The unpredictability of natural gas and coal market prices as well as the uncertainty in environmental policies may affect power generating costs, thus enhancing volatility in electricity market prices. The nuclear option, allowing to generate electricity without carbon emissions, offers the possibility to reduce the volatility of electricity prices through optimal diversification of power generating technologies. This paper provides a methodological scheme to plan well diversified “portfolios” of generating capacity that minimize the electricity price risk induced by random movements of fossil fuels market prices and by unpredictable fluctuations of carbon credits prices. The analysis is developed within a stochastic environment in which the dynamics of fuel prices as well as the dynamics of carbon credits prices is assumed to evolve in time according to well defined Brownian processes. Starting from market data and using Monte Carlo techniques to simulate generating cost values, the hedging argument is developed by selecting optimal portfolio of power generating technologies using a mean–variance approach.

Suggested Citation

  • Mari, Carlo, 2014. "Hedging electricity price volatility using nuclear power," Applied Energy, Elsevier, vol. 113(C), pages 615-621.
    • Handle: RePEc:eee:appene:v:113:y:2014:i:c:p:615-621
    DOI: 10.1016/j.apenergy.2013.08.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S030626191300651X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2013.08.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Thomas, Steve, 2010. "Competitive energy markets and nuclear power: Can we have both, do we want either?," Energy Policy, Elsevier, vol. 38(9), pages 4903-4908, September.
    2. Tolis, Athanasios I. & Rentizelas, Athanasios A., 2011. "An impact assessment of electricity and emission allowances pricing in optimised expansion planning of power sector portfolios," Applied Energy, Elsevier, vol. 88(11), pages 3791-3806.
    3. Budzianowski, Wojciech M., 2012. "Value-added carbon management technologies for low CO2 intensive carbon-based energy vectors," Energy, Elsevier, vol. 41(1), pages 280-297.
    4. Kessides, Ioannis N., 2010. "Nuclear power: Understanding the economic risks and uncertainties," Energy Policy, Elsevier, vol. 38(8), pages 3849-3864, August.
    5. Feng, Zhen-Hua & Zou, Le-Le & Wei, Yi-Ming, 2011. "Carbon price volatility: Evidence from EU ETS," Applied Energy, Elsevier, vol. 88(3), pages 590-598, March.
    6. Goodfellow, Martin J. & Williams, Hugo R. & Azapagic, Adisa, 2011. "Nuclear renaissance, public perception and design criteria: An exploratory review," Energy Policy, Elsevier, vol. 39(10), pages 6199-6210, October.
    7. Ahearne, John F., 2011. "Prospects for nuclear energy," Energy Economics, Elsevier, vol. 33(4), pages 572-580, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gwang Goo Lee & Sung-Won Ham, 2023. "Prediction of Carbon Price in EU-ETS Using a Geometric Brownian Motion Model and Its Application to Analyze the Economic Competitiveness of Carbon Capture and Storage," Energies, MDPI, vol. 16(17), pages 1-13, August.
    2. Guglielmo D’Amico & Fulvio Gismondi & Filippo Petroni, 2020. "Insurance Contracts for Hedging Wind Power Uncertainty," Mathematics, MDPI, vol. 8(8), pages 1-16, August.
    3. Carlo Mari, 2018. "CO 2 Price Volatility Effects on Optimal Power System Portfolios," Energies, MDPI, vol. 11(7), pages 1-18, July.
    4. Lynch & John Curtis, 2016. "The effects of wind generation capacity on electricity prices and generation costs: a Monte Carlo analysis," Applied Economics, Taylor & Francis Journals, vol. 48(2), pages 133-151, January.
    5. Leurent, Martin & Jasserand, Frédéric & Locatelli, Giorgio & Palm, Jenny & Rämä, Miika & Trianni, Andrea, 2017. "Driving forces and obstacles to nuclear cogeneration in Europe: Lessons learnt from Finland," Energy Policy, Elsevier, vol. 107(C), pages 138-150.
    6. Turkson, Charles & Liu, Wenbin & Acquaye, Adolf, 2024. "A data envelopment analysis based evaluation of sustainable energy generation portfolio scenarios," Applied Energy, Elsevier, vol. 363(C).
    7. Barsha Nibedita & Mohd Irfan, 2022. "Non-linear cointegration between wholesale electricity prices and electricity generation: an analysis of asymmetric effects," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(1), pages 285-303, February.
    8. Benalcazar, Pablo & Komorowska, Aleksandra & Kamiński, Jacek, 2024. "A GIS-based method for assessing the economics of utility-scale photovoltaic systems," Applied Energy, Elsevier, vol. 353(PA).
    9. Carlo Lucheroni & Carlo Mari, 2021. "Internal hedging of intermittent renewable power generation and optimal portfolio selection," Annals of Operations Research, Springer, vol. 299(1), pages 873-893, April.
    10. Costa, Oswaldo L.V. & de Oliveira Ribeiro, Celma & Rego, Erik Eduardo & Stern, Julio Michael & Parente, Virginia & Kileber, Solange, 2017. "Robust portfolio optimization for electricity planning: An application based on the Brazilian electricity mix," Energy Economics, Elsevier, vol. 64(C), pages 158-169.
    11. Jakub Ochmann & Grzegorz Niewiński & Henryk Łukowicz & Łukasz Bartela, 2024. "Potential for Repowering Inland Coal-Fired Power Plants Using Nuclear Reactors According to the Coal-to-Nuclear Concept," Energies, MDPI, vol. 17(14), pages 1-21, July.
    12. Stringer, Thomas & Joanis, Marcelin & Abdoli, Shiva, 2024. "Power generation mix and electricity price," Renewable Energy, Elsevier, vol. 221(C).
    13. Locatelli, Giorgio & Invernizzi, Diletta Colette & Mancini, Mauro, 2016. "Investment and risk appraisal in energy storage systems: A real options approach," Energy, Elsevier, vol. 104(C), pages 114-131.
    14. Wu, Jung-Hua & Huang, Yun-Hsun, 2014. "Electricity portfolio planning model incorporating renewable energy characteristics," Applied Energy, Elsevier, vol. 119(C), pages 278-287.
    15. Carlo Lucheroni & Carlo Mari, 2018. "Optimal Integration of Intermittent Renewables: A System LCOE Stochastic Approach," Energies, MDPI, vol. 11(3), pages 1-21, March.
    16. Vithayasrichareon, Peerapat & MacGill, Iain F., 2014. "Incorporating short-term operational plant constraints into assessments of future electricity generation portfolios," Applied Energy, Elsevier, vol. 128(C), pages 144-155.
    17. Lucheroni, Carlo & Mari, Carlo, 2017. "CO2 volatility impact on energy portfolio choice: A fully stochastic LCOE theory analysis," Applied Energy, Elsevier, vol. 190(C), pages 278-290.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vladimir M. Cvetković & Adem Öcal & Yuliya Lyamzina & Eric K. Noji & Neda Nikolić & Goran Milošević, 2021. "Nuclear Power Risk Perception in Serbia: Fear of Exposure to Radiation vs. Social Benefits," Energies, MDPI, vol. 14(9), pages 1-19, April.
    2. Csereklyei, Zsuzsanna, 2014. "Measuring the impact of nuclear accidents on energy policy," Ecological Economics, Elsevier, vol. 99(C), pages 121-129.
    3. Linares, Pedro & Conchado, Adela, 2013. "The economics of new nuclear power plants in liberalized electricity markets," Energy Economics, Elsevier, vol. 40(S1), pages 119-125.
    4. Csereklyei, Zsuzsanna & Thurner, Paul W. & Bauer, Alexander & Küchenhoff, Helmut, 2016. "The effect of economic growth, oil prices, and the benefits of reactor standardization: Duration of nuclear power plant construction revisited," Energy Policy, Elsevier, vol. 91(C), pages 49-59.
    5. García-Martos, Carolina & Rodríguez, Julio & Sánchez, María Jesús, 2013. "Modelling and forecasting fossil fuels, CO2 and electricity prices and their volatilities," Applied Energy, Elsevier, vol. 101(C), pages 363-375.
    6. Lucheroni, Carlo & Mari, Carlo, 2017. "CO2 volatility impact on energy portfolio choice: A fully stochastic LCOE theory analysis," Applied Energy, Elsevier, vol. 190(C), pages 278-290.
    7. Zhou, Xinxing & Gao, Yan & Wang, Ping & Zhu, Bangzhu & Wu, Zhanchi, 2022. "Does herding behavior exist in China's carbon markets?," Applied Energy, Elsevier, vol. 308(C).
    8. Leurent, Martin & Jasserand, Frédéric & Locatelli, Giorgio & Palm, Jenny & Rämä, Miika & Trianni, Andrea, 2017. "Driving forces and obstacles to nuclear cogeneration in Europe: Lessons learnt from Finland," Energy Policy, Elsevier, vol. 107(C), pages 138-150.
    9. Bergthorson, Jeffrey M. & Thomson, Murray J., 2015. "A review of the combustion and emissions properties of advanced transportation biofuels and their impact on existing and future engines," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 1393-1417.
    10. Rehner, Robert & McCauley, Darren, 2016. "Security, justice and the energy crossroads: Assessing the implications of the nuclear phase-out in Germany," Energy Policy, Elsevier, vol. 88(C), pages 289-298.
    11. Zheng, Zeyu & Xiao, Rui & Shi, Haibo & Li, Guihong & Zhou, Xiaofeng, 2015. "Statistical regularities of Carbon emission trading market: Evidence from European Union allowances," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 426(C), pages 9-15.
    12. Zhao, Xin-gang & Wu, Lei & Li, Ang, 2017. "Research on the efficiency of carbon trading market in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 79(C), pages 1-8.
    13. Hoti, Ferdiana & Perko, Tanja & Thijssen, Peter & Renn, Ortwin, 2021. "Who is willing to participate? Examining public participation intention concerning decommissioning of nuclear power plants in Belgium," Energy Policy, Elsevier, vol. 157(C).
    14. Quande Qin & Huangda He & Li Li & Ling-Yun He, 2020. "A Novel Decomposition-Ensemble Based Carbon Price Forecasting Model Integrated with Local Polynomial Prediction," Computational Economics, Springer;Society for Computational Economics, vol. 55(4), pages 1249-1273, April.
    15. Marques, António Cardoso & Fuinhas, José Alberto & Menegaki, Angeliki N., 2014. "Interactions between electricity generation sources and economic activity in Greece: A VECM approach," Applied Energy, Elsevier, vol. 132(C), pages 34-46.
    16. Christopher Otto & Thomas Kempka, 2015. "Thermo-Mechanical Simulations of Rock Behavior in Underground Coal Gasification Show Negligible Impact of Temperature-Dependent Parameters on Permeability Changes," Energies, MDPI, vol. 8(6), pages 1-28, June.
    17. Wang, Fan & Gu, Jibao & Wu, Jianlin, 2020. "Perspective taking, energy policy involvement, and public acceptance of nuclear energy: Evidence from China," Energy Policy, Elsevier, vol. 145(C).
    18. Ganesh, Ibram, 2016. "Electrochemical conversion of carbon dioxide into renewable fuel chemicals – The role of nanomaterials and the commercialization," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1269-1297.
    19. Palao, Fernando & Pardo, Angel, 2012. "Assessing price clustering in European Carbon Markets," Applied Energy, Elsevier, vol. 92(C), pages 51-56.
    20. Georgios Varvoutis & Athanasios Lampropoulos & Evridiki Mandela & Michalis Konsolakis & George E. Marnellos, 2022. "Recent Advances on CO 2 Mitigation Technologies: On the Role of Hydrogenation Route via Green H 2," Energies, MDPI, vol. 15(13), pages 1-38, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:113:y:2014:i:c:p:615-621. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.