Strategic investment decisions under the nuclear power debate in Belgium

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.

Energy Transitions in Western European Countries: Regulation Comparative Analysis

“…Belgium also appears to be currently engaged in a progressive elimination of nuclear power, but the policy on this matter is not unanimous, and most scientific reports recommend extending the nuclear license in order to reduce the current pressure on supply uncertainty [52].…”

Exploring investment potential in a context of nuclear phase-out uncertainty: Perfect vs. imperfect electricity markets

“…Furthermore, Rogge and Johnstone (2017) use descriptive statistics to nd evidence that Germany's nuclear phase-out policy had a positive inuence on manufacturers' expenditures in renewable energy. In the Belgian context and assuming strategic behavior between rms (i.e., imperfect competition), de Frutos Cachorro et al (2019) explicitly consider uncertainty about the nuclear phase-out policy in the modeling and show that an increase in the probability of nuclear license extension results in lower levels of investment, primarily in renewable energy. These lower investment levels, in turn, result in a lower total production and a higher electricity price in a subsequent period in the future.…”

“…In the current paper, we extend the analysis made in de Frutos Cachorro et al (2019) to dierent levels of market competition, namely to monopoly, duopoly (in this case assuming a Nash-Cournot market structure) and perfect competition (the ecient solution in terms of social welfare), focusing on the investment stage. Indeed, in Kettunen et al (2011, p.81), authors argue that 'apart from the level of carbon prices, the associated policy uncertainty will have an eect on market structure evolution through a tendency for investments to be led by dominant incumbents rather than smaller independent power producers, leading to a more concentrated and hence less competitive market'.…”

“…As in de Frutos Cachorro et al (2019), in order to reduce the complexity of the modeling, we have simulated the Belgian market as an autarky, and thereby, trade of electricity is not considered here. In fact, taking into account that the European market is not fully integrated and that some elements, such as national emission targets, will likely impact the electricity price convergence in EU countries, this work remains an interesting case study at country level, from an economic and practical point of view, although it is a simplication of the reality.…”

“…The third component consists of the capital expenditure, or investment cost, which is dened as a quadratic and convex cost function with respect to additional investment capacity, E i (k) (in MW), with cc(k) > 0 the unitary marginal investment cost per technology (e/MW). This functional form for investment costs has been commonly used in previous literature of decision making in electricity markets (e.g., Genc and Sen, 2008;Genc and Thille, 2011;de Frutos Cachorro et al, 2019). As explained in Genc and Sen (2008), while the quadratic form captures the increasing cost of additional investment in order to stimulate rms to expand with multiple technologies, and to obtain more qualitative results, "the convex relationship may stem from adjustment costs, which are due to costs of installing and/or removing equipment (see Reynolds, 1986)", as argued in Genc and Thille (2011).…”