Nuclear Capacity Auctions

30 Pages Posted: 27 Jun 2012

See all articles by Sven-Olof Fridolfsson

Sven-Olof Fridolfsson

Research Institute of Industrial Economics (IFN)

Thomas Tangerås

Research Institute of Industrial Economics (IFN)

Date Written: December 13, 2011

Abstract

We propose nuclear capacity auctions as a means to improve the incentives for investing in nuclear power. A properly designed auction allocates the license to the most efficient bidder; sells the license if and only if new nuclear power is 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.

Keywords: capacity auctions, investments, market power, nuclear power, virtual power plants

JEL Classification: D44, L12, Q48

Suggested Citation

Fridolfsson, Sven-Olof and Tangerås, Thomas, Nuclear Capacity Auctions (December 13, 2011). IFN Working Paper No. 892, Available at SSRN: https://ssrn.com/abstract=2094158 or http://dx.doi.org/10.2139/ssrn.2094158

Sven-Olof Fridolfsson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Thomas Tangerås (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/thomast

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