Ownership structure of nuclear power plants for fair competition and efficiency: private low-cost access versus public ownership

When the retail electricity market is liberalized, the incumbent firm has cost advantage over new entrants. This situation harms fair competition. To level the playing field, the entrant should also have access to low-cost generation. In this paper, we study how to utilize cost advantageous plant which is unevenly distributed in the context of electricity industry. We compare two scenarios. In the first scenario, the incumbent firm owns both the cost-inefficient technology (e.g., thermal power plants) and the cost-efficient technology (e.g., nuclear power plants), and it allows the entrant firm access to the cost-efficient one, namely private low-cost access. The second scenario involves introducing a public firm which aims to balance its revenue and cost, where all of low-cost power plants are owned by the public firm instead of the incumbent firm. The second scenario, namely public ownership, should be compared to the first one since it seems to assure that the incumbent and the entrant have equal access to the cost-efficient power plants. We consider a Cournot-type competition of a duopoly market. We first show that the total quantity of electricity supplied under public ownership is larger than that under private low-cost access. Subsequently, we reveal that the result is reversed if we assume capacity constraints and fixed costs for cost-efficient power plants. Finally, we show the condition wherein an incumbent chooses private low-cost access instead of public ownership if necessary. As TOB to EDF is being considered in France, this paper provides an analytical perspective on the nationalization of EDF.