Carbon Pricing, Power Markets and the Competitiveness of Nuclear Power

This study assesses the competitiveness of nuclear power against coal- and gas-fired power generation in liberalised electricity markets with either CO2 trading or carbon taxes. It uses daily price data for electricity, gas, coal and carbon from 2005 to 2010, which encompasses the first years of the European Emissions Trading System (EU ETS), the world’s foremost carbon trading framework. The study shows that even with modest carbon pricing, competition for new investment in electricity markets will take place between nuclear energy and gas-fired power generation, with coal-fired power struggling to be profitable. The outcome of the competition between nuclear and gas-fired generation hinges, in addition to carbon pricing, on the capital costs for new nuclear power plant construction, gas prices and the profit margins applied. Strong competition in electricity markets reinforces the attractiveness of nuclear energy, as does carbon pricing, in particular when the latter ranges between USD 40 and USD 70 per tonne of CO2. The data and analyses contained in this study provide a robust framework for assessing cost and investment issues in liberalised electricity markets with carbon pricing.