Econonomics of Energy and Environmental Policy

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German Nuclear Policy Reconsidered: Implications for the Electricity Market

In the aftermath of the nuclear catastrophe in Fukushima-Daiichi, German nuclear policy has been reconsidered. This paper demonstrates the economic effects of an accelerated nuclear phase-out in Germany on the European electricity market. An optimization model is used to analyze two scenarios with different lifetimes for nuclear plants in Germany (phase-out vs. prolongation). Based on political targets, both scenarios assume significant electricity demand reductions and a high share of renewable energy sources in Germany. We find that electricity costs and prices in the European system are higher in the phase-out scenario, especially in Germany, associated with welfare losses. Due to lifetime extensions of existing fossil-fired plants as well as moderate capacity additions, we conclude that the generation sector can generally cope with the phase-out under the given assumptions. Yet, we emphasize that this requires a substantial and costly transformation of the supply and the demand side.
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JEL Codes:L94: Electric Utilities, O31: Innovation and Invention: Processes and Incentives, P48: Other Economic Systems: Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

Keywords: Nuclear policy, Climate protection, Renewable energy, Electricity market modeling

DOI: 10.5547/2160-5890.1.3.4

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Published in Volume 1, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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