Modeling Power Generation Switch as a Real Switching Option: Nuclear Vs. Gas


Moahamed Ben Abdelhamid, Chaker Aloui, Corinne Chaton

Given the volatility of the prices of fossil fuels and of environmental constraints, the nuclear power plants can be the least expensive solution to satisfy the demand of electricity. In this paper, we present a dynamic modeling for an optimal operational planning by considering the possibility to switch from natural gas to nuclear power. A switching options approach is applied to address an optimal power generation strategy. We show that, when we exchange the current asset with another alternative, this turns out to be equivalent to bearing the cost of the alternative operational option to earn the current cost. The results of the analysis justify the economic worth of the decision to adopt nuclear energy generation. The switching option increases the profit of the power generation schedule. The bene…t of this decision is explained in the presence of a no correlation condition and the switching costs.


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