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Strategic investment decisions under the nuclear power debate in Belgium

Julia de Frutos Cachorro (), Gwen Willeghems () and Jeroen Buysse ()
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Julia de Frutos Cachorro: Universitat de Barcelona
Gwen Willeghems: VITO - EnergyVille
Jeroen Buysse: Ghent University

No 2018/383, UB Economics Working Papers from Universitat de Barcelona, Facultat d'Economia i Empresa, UB School of Economics

Abstract: In view of the current nuclear power debate in Belgium, we analyze how uncertainty about a nuclear phase-out, coupled with the implementation of renewable energy subsidies and nuclear taxes, affects investment capacity and productivity decisions by Belgian electricity suppliers. To achieve this goal, considering the key characteristics of the Belgian market, we build a Stackelberg closed-loop (two-stage) equilibrium model in which investment decisions are made in a first stage under uncertainty regarding a nuclear phase-out, and productivity decisions are subsequently made in a second stage in a certainty environment. Our analysis indicates that, regardless of subsidies, an increase in the probability of nuclear license extension results in lower levels of investment - primarily in renewable energy -, lower total production and a higher electricity price. We also show that the implementation of renewable energy subsidies reduces the effect of an increase in probability of nuclear license extension on producer’s decisions regarding expanded capacity and on total profits in the market.

Keywords: Electricity market; capacity investment decisions; stackelberg-based model; closed-loop; uncertainty nuclear production; renewable energy subsidies (search for similar items in EconPapers)
JEL-codes: C72 L10 L94 Q40 Q48 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2018
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