This paper studies the propagation and effects of faults in critical components that pertain to the secondary loop of a nuclear power plant found in nuclear hybrid energy systems (NHESs). This information is used to design an online monitoring (OLM) system that is capable of detecting and analyzing faults that are likely to occur during NHES operation. In this research, the causes, features, and effects of possible faults are investigated by simulating the propagation of faults in the secondary loop of a nuclear power plant. The simulation is conducted using Integrated System Failure Analysis (ISFA), a promising method analyzing hardware and software faults during the conceptual design phase. First, the models of system components required by ISFA are constructed. Then, fault propagation analysis is implemented, which is conducted under the bounds set by acceptance criteria derived for the design of an OLM system. The result of the fault simulation is utilized to evaluate the effectiveness of signals for fault detection and diagnosis and to propose an optimization plan for the OLM system. Finally, several experiments are designed and conducted using a hardware-in-the-loop system to verify the correctness and effectiveness of the proposed method.