Exploring investment potential in a context of nuclear phase-out uncertainty: Perfect vs. imperfect electricity markets

Julia de Frutos Cachorro, Gwen Willeghems and Jeroen Buysse

Energy Policy, 2020, vol. 144, issue C

Abstract: In view of the ongoing nuclear power debate in Europe, we analyze how uncertainty about a nuclear phase-out affects investment capacity decisions by Belgian electricity suppliers depending on the type of market structure considered. To achieve this goal, we build a structural model and solve it by using game-theoretic and optimization approaches, in order to consider the different types of market structure, namely oligopoly (simplified to a duopoly in this case), and the two extremes of the competition spectrum, i.e., monopoly and perfect competition. We show that higher levels of investment in new electricity generation capacity are reached with decreasing probability of nuclear license extension and/or with higher levels of competition in the market. Moreover, investments in perfectly competitive markets are less influenced by changes in the probability of future nuclear license extension, resulting in a more stable long-term investment climate. However, the consideration of possible changes in market structure and gradual nuclear phase-out is crucial in order to not overestimate investment potential in Belgium.

Keywords: Generation capacity investments; Electricity markets; Nuclear phase-out uncertainty; Level of market competition (search for similar items in EconPapers)
JEL-codes: C70 L10 L94 Q40 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:144:y:2020:i:c:s0301421520303736

DOI: 10.1016/j.enpol.2020.111640

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