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

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  • de Frutos Cachorro, Julia
  • Willeghems, Gwen
  • Buysse, Jeroen

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.

Suggested Citation

  • de Frutos Cachorro, Julia & Willeghems, Gwen & Buysse, Jeroen, 2020. "Exploring investment potential in a context of nuclear phase-out uncertainty: Perfect vs. imperfect electricity markets," Energy Policy, Elsevier, vol. 144(C).
  • Handle: RePEc:eee:enepol:v:144:y:2020:i:c:s0301421520303736
    DOI: 10.1016/j.enpol.2020.111640
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    More about this item

    Keywords

    Generation capacity investments; Electricity markets; Nuclear phase-out uncertainty; Level of market competition;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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