The Role of Nuclear Power in Reducing Risk of the Fossil Fuel Prices and Diversity of Electricity Generation in Tunisia: A Portfolio Approach

This paper applies real options and mean-variance portfolio theories to analyze the electricity generation planning into presence of nuclear power plant for the Tunisian case. First, we analyze the choice between fossil fuel and nuclear production. A dynamic model is presented to illustrate the impact of fossil fuel cost uncertainty on the optimal timing to switch from gas to nuclear. Next, we use the portfolio theory to manage risk of the electricity generation portfolio and to determine the optimal fuel mix with the nuclear alternative. Based on portfolio theory, the results show that there is other optimal mix than the mix fixed for the Tunisian mix for the horizon 2010-2020, with lower cost for the same risk degree. In the presence of nuclear technology, we found that the optimal generating portfolio must include 13% of nuclear power technology share.