Price Volatility and Banking in Green Certificate Markets

Abstract

There is concern that prices in a market for Green Certificates (GCs) primarily based on volatile wind power will fluctuate excessively, leading to corresponding volatility of electricity prices. Applying a rational expectations simulation model of competitive storage and speculation of GCs the paper shows that the introduction of banking of GCs may reduce price volatility considerably and lead to increased social surplus. Banking lowers average prices and is therefore not necessarily to the benefit of “green producers”. Proposed price bounds on GC-prices will reduce the importance of banking and even of the GC system itself. Copyright Springer Science+Business Media, Inc. 2006commodity speculation, electricity, environment, green certificates, marketable permits, uncertainty, Q28, Q42, Q48,

SMART-SREC: A stochastic model of the New Jersey solar renewable energy certificate market

“…Nonetheless, there exist very few attempts to build stochastic models which describe how market rules affect price behavior. Amundsen et al (2006) provide an early proposal for modeling green certificate prices in Europe, building on the classical commodity storage models of Deaton & Laroque (1996), Routledge et al (2000) and others, equating the banking of certificates for future years to the storage of grains or metals. However, they do not incorporate into their work the regulatory structure of the market and its unique features.…”

Understanding of the Built of European Union Legal System: The Function of Individual Rights

“…On the other hand, the use of private transaction rules exposes the sector to possible speculative pressures usually affecting the market segments in which financial intermediation plays a crucial role (Amundsen et al, 2006).…”

ADAPT: A Price-Stabilizing Compliance Policy for Renewable Energy Certificates: The Case of SREC Markets

“…(More generally, [8] allow for dependence on lagged SREC prices or historical average prices to reflect solar construction time, but for simplicity and dimension reduction we use only current newest vintage prices.) The instantaneous generation rate g t at each t is given by (1) g t (p, ε t ) =ĝ t exp a 1 sin(4πt) + a 2 cos(4πt) + a 3 sin(2πt) + a 4 cos(2πt) + ε t .…”

“…While only very limited literature on stochastic modeling of SREC markets exists (see [1,8,16]), carbon emissions markets have attracted much more attention (see [7,13]), including recent studies of the Market Stability Reserve's likely impact on prices ( [15,19]). However, various key differences between carbon and REC markets require careful consideration, including the opposite roles for supply and demand, the typical 'withdrawal' rule reducing incentives for banking, the possibility of unlimited banking, and the wide range of factors affecting carbon emissions abatement, notably volatile fuel prices and power demand.…”