Strategic Investment Decisions Under the Nuclear Power Debate in Belgium

UB Economics Working Papers E18/383

56 Pages Posted: 9 Nov 2018

See all articles by Julia de Frutos Cachorro

Julia de Frutos Cachorro

University of Barcelona - Barcelona Economic Analysis Team (BEAT)

Gwen Willeghems

VITO - EnergyVille

Jeroen Buysse

Ghent University-Universiteit Gent

Date Written: October 4, 2018

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

JEL Classification: C72, L10, L94, Q40, Q48

Suggested Citation

de Frutos Cachorro, Julia and Willeghems, Gwen and Buysse, Jeroen, Strategic Investment Decisions Under the Nuclear Power Debate in Belgium (October 4, 2018). UB Economics Working Papers E18/383. Available at SSRN: https://ssrn.com/abstract=3267877 or http://dx.doi.org/10.2139/ssrn.3267877

Julia De Frutos Cachorro (Contact Author)

University of Barcelona - Barcelona Economic Analysis Team (BEAT) ( email )

Gran Via de les Corts Catalanes
Barcelona, 08007
Spain

Gwen Willeghems

VITO - EnergyVille ( email )

Jeroen Buysse

Ghent University-Universiteit Gent

Coupure Links 653
Gent, 9000
Belgium

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