Market power in renewable portfolio standards

Renewable portfolio standard (RPS), which requires a certain percentage of electricity production from renewables, has received considerable attention. One emerging issue is the possibility of strategic behavior in the renewable energy certificate/credit (REC) market, and its spillover effects on the electricity market. This paper develops dominant firm-competitive fringe models that account for market power. We show that market power could have significant impacts on the REC and power prices. In particular, when a nonrenewable generator is a dominant firm and a renewable generator is a competitive fringe, the nonrenewable firm has a strong incentive to lower the REC price, even to zero for avoiding REC costs. The zero REC price would negate price impacts in the power market, thereby mitigating market power of the dominant firm. However, this could lead to an underinvestment in renewables in the long run as subsidies received by renewables in form of RECs vanish. Therefore, regulatory agencies need to carefully oversee the market performance to ensure a healthy development of renewable industries under the RPS policies.     

Green certificate markets,the risk of over-investment,and the role of long-term contracts

Several papers have recently analyzed the theory and implementation of renewable energy support schemes. The case for a renewable electricity standard (RES) in tandem with a tradeable green certificate (TGC) market has been largely based on efficiency considerations. Case study evidence is inconclusive, in part due to the short track record, but is not generally favorable. Here we reconsider the efficiency case, both static and dynamic, in light of special characteristics of renewable energy projects. We find that when exclusively high fixed-cost technologies comprise the eligible technology pool, the equilibrium form of contracting obviates the principal efficiency advantages claimed for certificate markets. When low fixed-cost technologies compete alongside high fixed-cost technologies in the certificate market, we show that it is likely that long-term contracts will disappear, and the technological choice will be inefficiently shifted away from the high fixed-cost technology. We consider evidence from three well-developed certificate schemes—in Britain, Sweden, and Texas—and find that it is broadly consistent with the theory here.     

Optimal regulation of renewable energy: A comparison of Feed-in Tariffs and Tradable Green Certificates in the Spanish electricity system

Incentives for renewable energy based on Feed-in-Tariffs have succeeded in achieving high levels of renewable installed capacity. However, these incentives have not been responsive to market conditions or price signals, imposing in some cases a great financial burden on consumers when Renewable Energy Sources reached significant levels. A way out of this problem could be a market mechanism where incentives respond to the level of investment on renewables. We explore this issue comparing a regulatory system based on Tradable Green Certificates, able to react to market changes, to a Feed-in-Tariffs incentive scheme. We model the strategic interaction between participants in the electricity pool and the Tradable Green Certificates market and focus on the optimal regulation for the retailer segment, which generates the desired demand for green certificates as a decreasing function of the certificate price. We then calibrate our theoretical model with data from the Spanish electricity system for the period 2008–2013. Simulations show that a green certificate scheme could both achieve the 2020 targets for renewable electricity and reduce regulatory costs. However, the role of regulators is still important, since setting the right target for renewable electricity affects the cost burden of the system.     

Modeling of a green certificate market

The paper considers one of the economic mechanisms, stimulating the introduction of renewable energy sources (RES)—a green certificate market. A mathematical model was developed to describe a supply and demand balance in the electricity and green certificate markets simultaneously. The sellers of certificates are RES owners, who obtain certificates for each unit of electricity produced, and the buyers are consumers, who are obliged by law to buy a certain share of this electricity.Equilibrium structures of the power system including RES with stochastic operation conditions are calculated. The prices of electricity and certificates, as well as the total economic effect of the system are determined taking into account external costs (environmental damages). The paper shows that a mechanism of green certificates is not an ideal means for minimizing the impact of energy on the environment: the economic effect turns out to be smaller than the maximum possible one. However, this deviation is relatively small, therefore the green certificate market allows the external effects to be partially taken into account. Such a market creates incentives for investors, electricity producers and consumers to make power sources mix, modes of electricity production and consumption closer to the optimum ones in terms of the economy as a whole.     

Green energy market development in Germany: effective public policy and emerging customer demand

This paper reviews the development of renewable energy in Germany from 1973 to 2003. It investigates the relative importance of energy policy and green power marketing in shaping the renewable energy market. More than a decade of consistent policy support for renewables under the feed-in law (StrEG) and its successor (EEG) has been an important driver for increasing renewable electricity generation to date, putting the country in a better position than most of its peers when it comes to achieving European Union targets for renewable energy. Green power marketing driven by customer demand, on the other hand, is growing, but has had limited measurable impact so far. We discuss potential intangible benefits of green power marketing and scenarios for future market development. The paper concludes with lessons that can be learned from the German case for policy design and market development in other countries.     

Renewable energy technologies for the Indian power sector: mitigation potential and operational strategies

The future economic development trajectory for India is likely to result in rapid and accelerated growth in energy demand, with attendant shortages and problems. Due to the predominance of fossil fuels in the generation mix, there are large negative environmental externalities caused by electricity generation. The power sector alone has a 40 percent contribution to the total carbon emissions. In this context, it is imperative to develop and promote alternative energy sources that can lead to sustainability of the energy–environment system. There are opportunities for renewable energy technologies under the new climate change regime as they meet the two basic conditions to be eligible for assistance under UNFCCC mechanisms: they contribute to global sustainability through GHG mitigation; and, they conform to national priorities by leading to the development of local capacities and infrastructure. This increases the importance of electricity generation from renewables. Considerable experience and capabilities exist in the country on renewable electricity technologies. But a number of techno–economic, market-related, and institutional barriers impede technology development and penetration. Although at present the contribution of renewable electricity is small, the capabilities promise the flexibility for responding to emerging economic, socio–environmental and sustainable development needs. This paper discusses the renewable and carbon market linkages and assesses mitigation potential of power sector renewable energy technologies under global environmental intervention scenarios for GHG emissions reduction. An overall energy system framework is used for assessing the future role of renewable energy in the power sector under baseline and different mitigation scenarios over a time frame of 35 years, between 2000 to 2035. The methodology uses an integrated bottom-up modelling framework. Looking into past performance trends and likely future developments, analysis results are compared with officially set targets for renewable energy. The paper also assesses the CDM investment potential for power sector renewables. It outlines specific policy interventions for overcoming the barriers and enhancing deployment of renewables for the future.     

Cost effects of international trade in meeting EU renewable electricity targets

The European market for renewable electricity received a major stimulus from the adoption of the Directive on the Promotion of Renewable Electricity. The Directive specifies the indicative targets for electricity supply from renewable energy sources (RES-E) to be reached in European Union (EU) Member States in the year 2010. It also requires Member States to certify the origin of their renewable electricity production. This article presents a first EU-wide quantitative evaluation of the effects of meeting the targets, using an EU-wide system for tradable green certificates (TGC). We calculate the equilibrium price of green certificates and identify which countries are likely to export or import certificates. Cost advantages of participating in such an EU-wide trading scheme are determined for each of the Member States. Moreover, we identify which choice of technologies results in meeting targets at least costs. Results are obtained from a model that quantifies the effects of achieving the RES-E targets in the EU with and without trade. The article provides a brief insight in this model as well as the methodology that was used to specify cost potential curves for renewable electricity in each of the 15 EU Member States. Model calculations show that within the EU-wide TGC system, the total production costs of the last option needed to satisfy the overall EU RES-E target equals 9.2 eurocent/kWh. Assuming that the production price of electricity on the European power market would equal 3 eurocent/kWh in the year 2010, the indicative green certificate price equals 6.2 eurocent/kWh. We conclude that implementation of an EU-wide TGC system is a cost-efficient way of stimulating renewable electricity supply.     

Financing investments in renewable energy : the impacts of policy design

The costs of electric power projects utilizing renewable energy technologies (RETs) are highly sensitive to financing terms. Consequently, as the electricity industry is restructured and new renewables policies are created, it is important for policymakers to consider the impacts of renewables policy design on RET financing. This paper reviews the power plant financing process for renewable energy projects, estimates the impact of financing terms on levelized energy costs, and provides insights to policymakers on the important nexus between renewables policy design and financing. We review five case studies of renewable energy policies, and find that one of the key reasons that RET policies are not more effective is that project development and financing processes are frequently ignored or misunderstood when designing and implementing renewable energy policies. The case studies specifically show that policies that do not provide long-term stability or that have negative secondary impacts on investment decisions will increase financing costs, sometimes dramatically reducing the effectiveness of the program. Within U.S. electricity restructuring proceedings, new renewable energy policies are being created, and restructuring itself is changing the way RETs are financed. As these new policies are created and implemented, it is essential that policymakers acknowledge the financing difficulties faced by renewables developers and pay special attention to the impacts of renewables policy design on financing. As shown in this paper, a renewables policy that is carefully designed can reduce renewable energy costs dramatically by providing revenue certainty that will, in turn, reduce financing risk premiums.     

An analysis of the legal and market framework for the cogeneration sector in Croatia

Following a strategic orientation towards sustainable development, the Government of the Republic of Croatia has changed its energy legislation and has put forward a framework for the systematic development and increased use of renewable energy sources and cogeneration. This paper focuses on changes in the regulatory context relevant to the cogeneration sector and also analyses the impact of energy market transition on cogeneration viability in municipal district heating, industry, services and the residential sector. Particular attention has been paid to the expected changes of heat, electricity and gas prices. We present a simple model for quantitative prediction of the cogeneration system profitability at different power levels under given national circumstances. Our findings support a need for a strong institutional support for initial penetration of the micro-cogeneration technologies into the Croatian energy system.     

The 2013 reforms of the Flemish renewable electricity support: Missed opportunities

The Flemish renewable electricity support system has struggled to address a number of problematic issues in the past. These included excessive profit margins and general malfunctioning of the green certificate market, as well as a lack of qualification of various existing renewable energy technologies. The Flemish government responded to these issues by introducing major reforms in 2013, including “banding” to differentiate the support for various technologies. However, reliable methods for differentiating renewable electricity technologies and calculating support levels have not been sufficiently developed. The main objective of the 2013 reforms was to reduce support costs, but application of German feed-in tariffs on 18 reference technologies has shown that most projects in Flanders continue to receive high levels of support. The 2013 reforms did not succeed in addressing malfunctioning of the green certificate market. On the contrary, the confidence of investors in renewable electricity plants has decreased as the terms of support can be altered retroactively by adjusting remuneration levels and through political interventions. Future adaptations are likely to be made which will further decrease the overall stability and effectiveness of the system.     

The political economy of international green certificate markets

This paper analyzes the political economy of establishing bilateral trade in green certificate markets as one step towards harmonization of European green electricity support systems. We outline some of the economic principles of an integrated bilateral green certificates market, and then discuss a number of issues that are deemed to be critical for the effectiveness, stability and legitimacy of such a market. By drawing on some of the lessons of the fairly recent intentions to integrate a future green certificate market in Norway with the existing Swedish one, we highlight, exemplify and discuss some critical policy implementation and design issues. These include, for instance, the system's connection to climate policy targets, the role of other support schemes and the definition of what green electricity technologies should be included. Furthermore, the establishment of an international market presumes that the benefits of renewable power (e.g., its impacts on the environment, diversification of the power mix, self-sufficiency, etc.) are approached and valued from an international perspective rather than from a national one, thus implying lesser emphasis on, for instance, employment and regional development impacts. A bilateral green certificate system thus faces a number of important policy challenges, but at the same time it could provide important institutional learning effects that can be useful for future attempts aiming at achieving greater policy integration in the European renewable energy sector.     

The UK offshore wind power programme: A sea-change in UK energy policy?

The British offshore windfarm programme presages the emergence of Britain as more of a leader than a laggard in renewables, the latter being the status it has hitherto endured in comparison to countries such as Denmark, Germany and Spain. Britain looks increasingly likely to exceed 20% of electricity being supplied from renewable energy by 2020, provided there continues to be adequate financial incentives for renewable energy. This turnaround is associated with increased British concerns about energy dependence on imported natural gas as well as pressure from EU legislation. However there are many planning pressures that countervail the drive for offshore wind power. British planning policy on offshore wind is distinctive (compared to other EU states) for its pragmatic, ‘criteria based’, approach that appears to favour offshore wind power development. The extent of the British offshore wind power programme is likely to depend heavily on consumer reactions to price increases caused by the offshore wind power programme.     

A comparative analysis of renewable electricity support mechanisms for Southeast Asia

This study evaluates the applicability of eight renewable electricity policy mechanisms for Southeast Asian electricity markets. It begins by describing the methodology behind 90 research interviews of stakeholders in the electricity industry. It then outlines four justifications given by respondents for government intervention to support renewables in Southeast Asia: unpriced negative externalities, counteracting subsidies for conventional energy sources, the public goods aspect of renewable energy, and the presence of non-technical barriers. The article develops an analytical framework to evaluate renewable portfolio standards, green power programs, public research and development expenditures, systems benefits charges, investment tax credits, production tax credits, tendering, and feed-in tariffs in Southeast Asia. It assesses each of these mechanisms according to the criteria of efficacy, cost effectiveness, dynamic efficiency, equity, and fiscal responsibility. The study concludes that one mechanism, feed-in tariffs, is both the most preferred by respondents and the only one that meets all criteria.     

基于可再生能源经济调度时序模拟的绿色证书市场交易研究

梳理可再生能源发电商、常规能源发电商与售电公司等交易主体之间的电力、绿色证书供需关系,以各发电商的利益最大化为目标,建立考虑绿色证书的能源经济调度模型,求解消纳保障机制下发电商电力调度及证书交易策略;通过算例分析说明了绿色证书机制提高可再生能源发电商收益的有效性,消纳责任权重对于绿证价格变化、市场力抑制等市场良性运营具...     

The renewables NFFO: A review

There have been three Orders of the renewables NFFO and a fourth has recently been announced. This paper explains the creation of the NFFO, the application procedures for each Order and the status of the contracts for each Order. It goes on to discuss the key lessons to be learnt from the process: namely that a market enablement programme should coordinate with the R&D programme; second, that competition as the basis for support of renewables, while bringing prices down rapidly, has a number of disbenefits; third, that the NFFO process has led to the development of renewable energy industry in the UK with a stake in its future; fourth, the deployment of renewable energy technologies as a result of the NFFO has led to a dawning of an understanding by the renewable energy industry of the key issues that renewable energy has to address and the importance of the attitudes of the financial institutions and electricity systems to the successful outcome of those issues; fifth, it describes the development of a de facto policy for renewable energy by OFFER; and finally, that the renewable support mechanism should be coordinated with a planning policy.     

The EU Renewables Directive—What is the fuss about trading?

Considerable argument about trading in green electricity certificates (GECs) preceded the publication of the proposed EU Renewables Directive in early 2008. The proposed Directive set a binding target of 20 per cent of EU energy to be derived from renewable energy by 2020 broken down into targets for each member state. Those arguing for trade in green certificates, called certificates of guaranteed origin (GO), included major electricity companies. However, the idea of mandatory trading was opposed by the main renewable energy industry lobby groups. The proposed Directive limited trading in accordance with the demands of the renewables industry pressure groups. Analysis suggests that if member states were forced to trade to achieve a mandatory target of 20 per cent target, then GEC prices would rise to high levels because the demand for tradeable certificates would be much higher than their supply. Trading is unlikely to improve the prospects for meeting the targets. A system of nationally based ‘feed-in tariff’ systems would not face the problems of uncertain certificate prices faced by compulsory trading in GECs.     

Governmental policy and prospect in electricity production from renewables in Lithuania

In Lithuania, the generation of electricity is based on the nuclear energy and on the fossil fuels. After the decommissioning of Ignalina nuclear power plant in 2009, the Lithuanian Power Plant and other thermal plants will become the major sources of electricity. Consequently, the Lithuanian power sector must focus on the implementation of renewable energy projects, penetration of new technologies and on consideration of the future opportunities for renewables, and Government policy for promoting this kind of energy. Production of electricity from renewable energy is based on hydro, biomass and wind energy resources in Lithuania. Due to the typical climatic condition in Lithuania the solar photovoltaics and geothermal energy are not used for power sector. Moreover, the further development of hydropower plants is limited by environmental restrictions, therefore priority is given to wind energy development and installation of new biomass power plants. According to the requirements set out in the Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001 on the promotion of electricity produced from renewable energy sources in the internal electricity market [Official Journal L283, 33–40, 27 October 2001], 7% of gross consumption of electricity will be generated from renewable energy by 2010 in Lithuania. The aim of this paper is to show the estimation of the maximum renewable power penetration in the Lithuanian electricity sector and possible environmental impact.     

Potential and use of renewable energy sources in Croatia

The current share of renewable energy sources in electricity production in Croatia is very high, around 50%. Nevertheless it is expected that the share of renewables will have to rise and efficient strategies must be examined and adopted. The Croatian government has recognised the important role renewable energy sources could play in Croatian energy and electricity supply. The most important barrier for a wider deployment of renewables in energy production is their cost which is still above those of conventional energy sources. As the energy market is currently undergoing the process of liberalisation, support mechanisms that are compatible with an open market philosophy must be adopted. The characteristics of the Croatian power system, the expected consumption, growth and possible future role of renewables in energy and electricity production is presented. The current legislative framework relevant for renewables is analysed and discussed.     

Consumers' willingness to pay for green electricity: A meta-analysis of the literature

At present, electricity generated from power plants using renewable sources costs more than electricity generated from power plants using conventional fuels. Consumers bear these expenses directly or indirectly through higher prices for renewable energy or taxes. The number of studies published over the last few years focusing on people's preferences for renewables has increased steadily, making it more and more difficult to identify key explanatory factors that determine people's willingness-to-pay (WTP) for renewables. We present results of a meta-regression on valuation of consumer preferences for a larger share of renewable energy in their electricity mix. Our meta-regression results reveal a number of important factors that explain the differences in WTP values for renewable energy. Different valuation methods show widely different values, with choice experiments producing the highest estimates. Our results further indicate that consumers' WTP for green electricity differs by source, with hydropower being the least valued. Variables that are often omitted from primary valuation studies are important in explaining differences in values. These variables describe individual and household characteristics as well as information on the type of power plant that will be replaced by renewables. Further, the marginal effect of a survey conducted in the US is pronounced. We also assess the potential for using the results for out-of-sample value transfer and find a median error of 21%.     

Statistical analysis of negative prices in European balancing markets

The presence of renewable power generation technologies increases the need for system flexibility due to their variable nature. The increasing share of variable renewables in European power systems create a downward adequacy problem, which deals with the ability of power systems to cope with periods of excess generation. The occurrence of negative prices on Central Western European electricity markets confirms the relevance of this issue, which is referred to as “incompressibility of power systems” and is assessed as a barrier for further renewable power integration. The objective of this article is to identify the main drivers of negative price periods in European balancing markets, by means of both an empirical and regression analysis. Results confirm a positive relation with the scheduled generation of renewables and inflexible base load, as well as a negative relation with the scheduled system load. Furthermore, the occurrence of negative prices is related to the positive and negative forecast error of renewable generation and demand, respectively. It is concluded that negative balancing market prices provide a market signal for investments in flexibility sources such as flexible generation, demand response, electricity storage, and interconnector capacity.