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Nuclear Capacity Auctions

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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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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  1. John Asker & Estelle Cantillon, 2008. "Properties of Scoring Auctions," ULB Institutional Repository 2013/172674, ULB -- Universite Libre de Bruxelles.
  2. Paul L. Joskow & John E. Parsons, 2012. "The Future of Nuclear Power After Fukushima," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
  3. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Series Working Papers 2004-W09, University of Oxford, Department of Economics.
  4. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, November.
  5. 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.
  6. Moreno, R. & Barroso, L.A. & Rudnick, H. & Mocarquer, S. & Bezerra, B., 2010. "Auction approaches of long-term contracts to ensure generation investment in electricity markets: Lessons from the Brazilian and Chilean experiences," Energy Policy, Elsevier, vol. 38(10), pages 5758-5769, October.
  7. Grubler, Arnulf, 2010. "The costs of the French nuclear scale-up: A case of negative learning by doing," Energy Policy, Elsevier, vol. 38(9), pages 5174-5188, September.
  8. Paul Klemperer, 2004. "What Really Matters in Auction Design, from Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
  9. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
  10. 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.
  11. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-29, September.
  12. Catherine Hausman, 2014. "Corporate Incentives and Nuclear Safety," American Economic Journal: Economic Policy, American Economic Association, vol. 6(3), pages 178-206, August.
  13. Lucas W. Davis & Catherine Wolfram, 2012. "Deregulation, Consolidation, and Efficiency: Evidence from US Nuclear Power," American Economic Journal: Applied Economics, American Economic Association, vol. 4(4), pages 194-225, October.
  14. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
  15. Lucas W. Davis, 2011. "Prospects for Nuclear Power," NBER Working Papers 17674, National Bureau of Economic Research, Inc.
  16. 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.
  17. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
  18. Paul Klemperer, 2004. "Survey of Auction Theory, from Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
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