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Nuclear Capacity Auctions

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Author Info

  • Fridolfsson, Sven-Olof

    ()
    (Research Institute of Industrial Economics (IFN))

  • Tangerås, Thomas

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

We propose nuclear capacity auctions as a means to improve the incentives for investing in nuclear power. A properly designed auction would (i) allocate the license to the most efficient bidder; (ii) sell the license if and only if new nuclear power was socially optimal. In particular, capacity auctions open the market for large-scale entry by outside firms. Requiring licensees to sell a share of capacity as virtual power plant contracts increases auction efficiency by softening incumbent producers’ incentive to bid for market power. Our motivating example is Sweden’s recent decision to allow new nuclear power to replace old reactors.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 892.

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Length: 29 pages
Date of creation: 15 Dec 2011
Date of revision:
Handle: RePEc:hhs:iuiwop:0892

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
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Web page: http://www.ifn.se/
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Related research

Keywords: Capacity auctions; investments; market power; nuclear power; virtual power plants;

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References

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  1. Paul L. Joskow, 2008. "Lessons Learned from Electricity Market Liberalization," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 9-42.
  2. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
  3. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
    [Auctions: Theory and Practice]
    ," Introductory Chapters, Princeton University Press.
  4. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, November.
  5. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
  6. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford.
  7. Fridolfsson, Sven-Olof & Tangerås, Thomas P., 2009. "Market power in the Nordic electricity wholesale market: A survey of the empirical evidence," Energy Policy, Elsevier, vol. 37(9), pages 3681-3692, September.
  8. Paul Klemperer, 2004. "What Really Matters in Auction Design, from Auctions: Theory and Practice
    [Auctions: Theory and Practice]
    ," Introductory Chapters, Princeton University Press.
  9. Paul Klemperer, 2004. "Survey of Auction Theory, from Auctions: Theory and Practice
    [Auctions: Theory and Practice]
    ," Introductory Chapters, Princeton University Press.
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Cited by:
  1. Edquist, Harald & Henrekson, Magnus, 2013. "Product Market Reforms and Incentives to Innovate in Sweden," Working Paper Series 986, Research Institute of Industrial Economics.

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