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Nuclear Capacity Auctions

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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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File URL: http://www.ifn.se/wfiles/wp/wp892.pdf
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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
Handle: RePEc:hhs:iuiwop:0892
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Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

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  1. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford.
  2. 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.
  3. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
  4. Lucas W. Davis & Catherine Wolfram, 2011. "Deregulation, Consolidation, and Efficiency: Evidence from U.S. Nuclear Power," NBER Working Papers 17341, National Bureau of Economic Research, Inc.
  5. Paul Klemperer, 2004. "What Really Matters in Auction Design, from Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
  6. Asker, John & Cantillon, Estelle, 2004. "Properties of Scoring Auctions," CEPR Discussion Papers 4734, C.E.P.R. Discussion Papers.
  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 L. Joskow, 2008. "Lessons Learned from Electricity Market Liberalization," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 9-42.
  9. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, December.
  10. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-829, September.
  11. 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).
  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. 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.
  14. Lucas W. Davis, 2012. "Prospects for Nuclear Power," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 49-66, Winter.
  15. repec:oxf:wpaper:2004-w09 is not listed on IDEAS
  16. 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.
  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. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
  19. Paul Klemperer, 2004. "Survey of Auction Theory, from Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
  20. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
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