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 market shares of the Belgian market, we build a Stackelberg two-step equilibrium model in which investment decisions are made in a first step under uncertainty regarding a nuclear phase-out, and productivity decisions are subsequently made in a second step for different investment possibilities found in the first step. 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 -. These lower investment levels in turn result in a lower total production and a higher electricity price in a subsequent period in the future. 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 therefore, on total future profits in the market.