engleski

From Market Uncertainty to Policy Uncertainty for Investment in Power Generation: Real Options for NPP on Electricity Market

In the electricity sector, market participants must make decisions about capacity choice in a situation of radical uncertainty about future market conditions. Sector is normally haracterised by non- storability and periodic and stochastic demand fluctuations. In these cases capacity determination is a decision for the long term, whereas production is adjusted in the short run. Capacities need to be installed well in advance (decision for investment even earlier because of long construction time and even longer in case of NPP to prepare all needed legal, financial and physical infrastructure), at times when companies face considerable demand and cost uncertainty when choosing their capacity. Paper looks on the main contributions in investment planning under uncertainty, in particular in the electricity market for capital intensive investments like NPP. The relationship between market and non-market factors (recent UK policy example) in determining investment signals in competitive electricity markets was analysed. Paper analyse the ability of competitive electricity markets to deliver the desired quantity and type of generation capacity and also investigates the variety of market imperfections operating in electricity generation and their impact on long- term dynamics for generation capacity, the most capital-intensive of the liberalised functions in the electricity supply industry. Paper analyses how price formation influences investment signals. Today, investment decisions are made by several operators that act independently. Number of factors (including market power, wholesale price volatility, lack of liquidity in the wholesale and financial market, policy and regulatory risks etc.) contribute to polluting the price signal and generating sub-optimal behaviour. Climate change policies can easily distort market signals, insulating renewables generation from market dynamics. This in turn reduces the proportion of the market that is effectively opened to competitive forces. When renewable support policies are undertaken, investments in conventional technologies suffer (especially in capital intensive investment like NPP). This produces distorting effects on the generation mix. Policy intervention, rather than market forces, is able to select artificially winners and losers, thus potentially undermining, in the long run, the necessary diversity of the energy mix.

power generation ; nuclear power plant ; electricity market ; market uncertainty ; investments ; generation

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