The development of a green certificate market

Liberalizing the electricity industry and attempting to reduce the emissions of greenhouse gases are the two dominant trends in European energy policy. The last-mentioned issue might require the contribution from renewable energy technologies, but at present most renewables cannot compete on their own with conventional technologies. Thus, it can be expected that if renewables must compete solely on market conditions alone this will slow down or even halt the development of new renewable capacity. One model in which additional payments to renewable technologies are generated is based on the development of a separate green market. In Holland a voluntary green certificate market has existed since the beginning of 1998. In Denmark a comprehensive restructuring of the legislation for the electric power industry has just been completed, including the framework for developing a separate green market for renewable electricity production. The main objectives of introducing this type of electricity market in Denmark is to secure the development of renewable energy technologies (including contributions to greenhouse gas reductions), while at the same time releasing the Government from the (by now) quite heavy burden of subsidising renewable technologies. Finally, a green market will make it possible for these renewable technologies to be partly economically compensated for the environmental benefits, which they generate compared to conventional power production. With the recent Danish legislation as starting point this paper analyzes possible ways to set up a green certificate market, treating as well some of the consequences produced when the market is actually funtioning. The analysis is applicable for all renewable technologies, but special attention is given to wind power.     

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.     

The diffusion of renewable electricity in the presence of climate policy and technology learning: The case of Sweden

The overall objective of this paper is to analyze the impact of climate policy and technology learning on future investments in the Swedish power sector. Methodologically we assess the lifetime engineering costs of different power generation technologies in Sweden, and analyze the impact of carbon pricing on the competitive cost position of these technologies under varying rate-of-return requirements. We also argue that technological learning in the Swedish power sector – not the least in the case of wind power – is strongly related to the presence of international learning and R&D spillovers, and for this reason capacity expansions abroad have important influences of the future cost of power generation in Sweden. The results suggest that renewable power will benefit from existing EU climate policy measures, but overall additional policy instruments (e.g., green certificate schemes) are also needed to stimulate the diffusion of renewable power. Moreover, under a recent European Commission scenario and using estimated learning rates for wind power and the combined cycle gas turbine (CCGT), wind power gains considerable competitive ground due to international technology learning impacts. These latter results are, however, very sensitive to the assumed learning-by-doing rates for wind power and CCGT, respectively.     

Harmonization of renewable electricity feed-in laws: A comment

This comment aims at critically analyzing some of the economic efficiency issues that are raised in the paper by Muñoz et al. [2007. Harmonization of renewable electricity feed-in laws in the European Union. Energy Policy 35, 3104–3114] on the harmonization of feed-in law schemes for renewable electricity in the European Union. We comment on the choice between green certificate systems and feed-in laws, but pay particular attention to the implementation and design of a harmonized feed-in law scheme. In the comment we argue first that the approach suggested by Muñoz et al. tends to downplay many of the practical difficulties in assessing the real costs facing investors in renewable electricity, not the least since the presence of regulatory uncertainty about the marginal costs of renewable electricity may be essential for the choice between different support systems. Concerning the benefit side of renewable electricity promotion, the Muñoz et al. (2007) paper builds on an interpretation of the EU Renewables Directive that provides plenty of room for national priorities and that therefore essentially implies that harmonized support premiums per se are of little value. We argue instead that a harmonized system should primarily address the international spillover effects from renewable electricity promotion, not the least those related to improved security of supply in Europe. There exists then a strong case for disregarding the specific national benefits of renewable electricity production in the design of harmonized support systems, and for instead considering international—perhaps at the start bilateral—policy support coordination based on entirely uniform support levels.     

Contribution of green labels in electricity retail markets to fostering renewable energy

In European countries, retailers are obliged to disclose the energy source and the related environmental impacts of their portfolio over the preceding year. The electricity supplied in the Dutch retail market is presented as renewable energy for 34%, but this relatively high share is for 69% based on certificates (Guarantees of Origin) which are imported from in particular Norway. The certificates are used to sell green electricity to consumers. The premium for green electricity which is actually paid by Dutch consumers is no more than a few percentages of the retail price. The low level of this premium is related to the abundant supply of certificates at low marginal costs from Norway. This also means that the premium for green electricity is too low to give an incentive for investments in new capacity. Hence, the current labelling system for renewable electricity is mainly valuable, besides being an instrument for tracking and tracing of renewable energy, as a marketing instrument for electricity retailers. The effectiveness of Guarantees of Origin as a policy instrument to foster renewable electricity sources is weak. This effectiveness can be raised by implementing restrictions on the international trade or the issuance of new certificates.     

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.     

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.     

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.     

Guarantee of Origin: The proof of the pudding is in the eating

Currently several EU Member States have introduced, or are about to introduce, a system of green certificates or Guarantees of Origin, preceding the requirement as of October 27th of this year by the European directive on renewable electricity (2001/77/EC) (see also Refocus March/April 2003, p. 60). This introduction creates new opportunities for the development of renewable energy, especially for international trade of green energy. Many member states implement Guarantee of Origin systems similar or even equal to green certificate systems that are already in place. However, one important aspect in these Guarantee of Origin systems is currently being neglected in the implementation: the “consumption phase” of the guarantee. Jan-Willem Langeraar of Ecofys and Rolf de Vos of GreenPrices argue that taking the guarantees out of the market is almost as important as issuing them.     

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.     

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.     

Renewable electricity in Sweden: an analysis of policy and regulations

This study aims to analyse the developments in renewable energy policy making in Sweden. It assesses the energy policy context, changes in the choice of policy instruments, and provides explanations behind policy successes and failures. Swedish renewable energy policy has been developing in a context of uncertainty around nuclear issues. While there has been made a political decision to replace nuclear power with renewables, there is a lack of consensus about the pace of phasing out nuclear power due to perceived negative impacts on industrial competitiveness. Such uncertainty had an effect in the formulation of renewable energy policy. Biomass and wind power are the main options for renewable electricity production. Throughout 1990s, the combined effect of different policy instruments has stimulated the growth of these two renewable sources. Yet, both biomass and wind power are still a minor contributor in the total electricity generation. Lack of strong government commitment due to uncertainty around nuclear issues is a crucial factor. Short-term subsidies have been preferred rather than open-ended subsidy mechanisms, causing intervals without subsidies and interruption to development. Other factors are such as lack of incentives from the major electricity companies and administrative obstacles. The taxation system has been successful in fostering an expansion of biomass for heating but hindered a similar development in the electricity sector. The quota system adopted in 2003 is expected to create high demand on biomass but does not favour wind power. The renewable energy aims are unlikely to be changed. Yet, the future development of renewable energy policies especially for high-cost technologies will again depend strongly on nuclear policies, which are still unstable and might affect the pace of renewable energy development.     

Green power accounting: Steps towards a European market for renewable electricity

If a member state wishes to comply with its indicative target for renewable electricity by importing it should be allowed to do so. The accounting of imports for the indicative targets is considered as a first step towards a European market for renewable electricity, which leads to a cost efficient compliance of targets set in Europe. In principle this is already possible, even without harmonizing national supporting systems. But in fact some elements of the European directive on renewable electricity (RES-E) need some clarification. Peter Niermeijer, Ecofys, and Rolf de Vos, GreenPrices argue which steps have to be taken in order to facilitate imports of green power.     

可再生能源配额制(RPS)在中国应用探讨

我国政府近些年来一直积极探索以强制性手段保障可再生能源发展的有效机制。2003年可再生能源立法开始列入议程,这是我国可再生能源发展史上的一项重要举措。为可再生能源电力入网提供强制性保障机制是此次立法工作中初步设想的一项内容,引入可再生能源配额制(RPS)成为可供考虑的选择方案之一。如果引入,对该政策进行细致周密的设计和保证有效实施是至关重要的。文章重点探讨了RPS政策设计和管理中应注意的几个主要问题,包括确立适用范围和责任主体、制定可再生能源目标、确定有效的可再生能源种类、建立绿色证书制度、制定处罚措施等。期望本文能为我国建立可再生能源法律和政策体系提供相关信息。     

Risk-based assessment of the cost-efficiency and the effectivity of renewable energy support schemes: Certificate markets versus feed-in tariffs

The introduction of renewable energy sources in the electricity generation mix has the potential to reduce power sector's emissions and countries' dependence on imported oil. Climate change concerns and highly volatile oil prices have attracted governments' interest and support to sustain investments in renewable energy capacity, and different support policies have been implemented in many countries around the world. This paper analyzes the effects of investors' risk aversion on the performance of support schemes. The analysis compares two policy options, a feed-in tariff mechanism with a certificate market system. Results show that while a tariff mechanism could obtain better results than a certificate market, its performance is strictly dependent on regulator choices. A certificate market instead, permits to obtain the desired level of renewable energy market share with good cost-efficiency as long as investors' risk aversion is moderate. Moreover, discounting future cash flows with higher social discount rates further benefits a certificate system making it preferable to feed-in tariffs.     

Green electricity policies in the United States: case study

While there has been interest in promoting the use of renewable energy in electricity production for a number of years in the United States, the market share of non-hydro renewable energy sources in electricity production has remained at about 2 percent over the past decade. The paper reviews the principal energy resources used for electricity production, considers the changing regulatory environment for the electricity industry, and describes government policies that have been used to promote green electricity in the United States, with an emphasis on measures adopted by state governments. Factors influencing the development of green power markets are also discussed, including underlying economic issues, public policy measures, the regulatory environment, external costs, and subsidies. Without significant increases in fossil fuel prices, much more stringent environmental regulations, or significant changes in electricity customer preferences, green electricity markets are likely to develop slowly in the United States.     

荷兰绿色电力政策

荷兰自上世纪90年代中期发展起来本国的绿色电力市场机制后,取得了令人瞩目的营销经验。在绿色电力政策实施期间,荷兰电力公司之间自发建立一个绿色证书交易系统,并且从2001年开始运行政府管理的绿色认证系统。在荷兰实施绿色电力市场机制期间的经验之一是政府支持,在强制性能源配额及自愿认购方式的争论中,该国的绿色电力政策经历了长期的摸索,分三个阶段不断发展自身的绿色电力政策。     

Quality uncertainty and the market for renewable energy: Evidence from German consumers

Consumers can choose from a wide range of electricity supply contracts, including green power options. Electricity produced from renewable energy involves information asymmetries. With a sample of more than 2,000 German electricity consumers, we tested the proposition of a “lemon market” for renewable energy in a discrete choice experiment. Specifically, we found that, compared to investor-owned firms, additional willingness-to-pay for renewable energy is approximately double when offered by cooperatives or municipally-owned electricity utilities. Consumers who are experienced with switching suppliers have an additional willingness-to-pay of one Eurocent per kilowatt hour for cooperatives and two Eurocents for public enterprises. The results demonstrate that organizational transformation in dynamically-changing electricity markets is not only driven by political initiatives but also by consumers' choices on the market. Public policy may reduce information asymmetries by promoting government labeling of green energy products.     

Quantifying the impacts of national renewable electricity ambitions using a North–West European electricity market model

This work builds a comprehensive North–West European Electricity Market model for the year 2020 and uses it to quantify the impacts of ambitious national renewable electricity targets. The geographical coverage of the model comprises Germany, France, Belgium, Netherlands, Luxemburg, Great Britain and Ireland. The model simulates the electricity market operation for the entire region at half hourly resolution and produces results in terms of electricity prices, cross border flows, emissions and associated total system costs. The impact of two carbon prices is examined within the model. Results highlight the policy challenges that arise when individual Member States formulate renewable energy plans in isolation in the absence of integrated modelling of interconnected regions as cross border power flows play a more significant role in market dynamics especially in the presence of geographically dispersed variable renewable generation sources such as wind and solar. From a policy perspective results suggest that based on these national plans, congestion will be present on a number of key lines at long periods during the year.     

Interactions of white certificates with other policy instruments in Europe

In a tradable white certificate (TWC) scheme, each certificate issued represents a certain amount of energy saved. Used in conjunction with an energy-saving obligation on certain parties in the energy supply chain and with rules for trading, monitoring and verification established, an efficient market for energy savings in sectors not covered by the European Union (EU) Emissions Trading Scheme can be established. However, a plethora of other mechanisms are already in place to promote a more sustainable use of energy in Europe. This paper analyses the interactions (both potential and realised in existing schemes) between TWCs and other policy instruments including tradable green certificates, the European Union Emissions Trading Scheme, the European Union Energy Performance in Buildings Directive as well as taxes, subsidies and loans. Measures implemented through a TWC scheme that reduce the consumption of electricity can make targets under a tradable green certificate scheme easier to attain. Where a tradable green certificate scheme contains relative targets, the target should be increased to achieve the same absolute amount of renewable power. A TWC scheme can also reduce the number of allowances electricity generators will need to surrender under the EU Emissions Trading Scheme. By reducing the available emission rights in the National Allocation Plans, this effect is possible to counteract.