Nuclear Capacity Auctions
30 Pages Posted: 27 Jun 2012
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: Suggested Citation
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