Risks Are Not Constant Through Time: Capacity Factor Risk at Nuclear Power Plants

My colleague, Yangbo Du, and I have just released a study of the dynamic structure of capacity factor risk through the life-cycle of a nuclear power plant. This is based on the performance of reactors in countries all around the world, using the International Atomic Energy Agency’s database. Here is the profile of the variance in the capacity factor through the life of the reactor:

The risk is greatest when the reactor is just starting up. It then declines dramatically. Over time, however, due to the small, but cumulating possibility of a permanent shutdown it rises again.

This is a nice demonstration of the fact that risks are not typically constant through time. The constant compounding of risk is a key assumption behind the usual discounting rule, but many people forget about this and just apply the rule to any and all problems, even when risks evolve in more complicated ways.

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