Renewable-based generation expansion under a green certificate market |
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| Affiliation: | 1. College of Forestry, Northwest A&F University, 3 Taicheng Road, Yangling 712100, China;2. Beijing Research and Development Center for Grass and Environment, Beijing Academy of Agriculture and Forestry Sciences, Beijing 100097, China;1. Department of Civil and Environmental Engineering, University of Illinois, Urbana, IL 61801, USA;2. Department of Mechanical Science and Engineering, University of Illinois, Urbana, IL 61801, USA;3. Sandia National Laboratory, Albuquerque, NM 87123, USA;1. Mechanical Engineering Department, Technological Educational Institute of Western Greece, Meg. Alexandrou 1, Patra, 26334, Greece;2. School of Mathematics, University of East Anglia, Norwich, NR4 7TJ, UK;1. Georgia Institute of Technology, Atlanta, GA 30332-0373, USA;2. Prairie View A&M University, Prairie View, TX 77446-0397, USA;3. Oak Ridge National Laboratory, Oak Ridge, TN 37831-6181, USA |
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| Abstract: | Quota obligations represent a policy instrument to reduce carbon emissions and incentivize renewable-based electricity generation. This support scheme places an obligation on generating companies to comply with a quota of renewable-based production. Eligible renewable units receive one certificate for each MWh, while fossil-based generating companies must buy certificates to comply with the requirement. This paper proposes a family of generation expansion models that include both an electricity and a certificate market to investigate to which degree a given quota obligation and non-compliance penalty incentivize the capacity expansion of renewable-based generation. Two market players are considered, namely, a renewable-based generating company with null operating cost and a weather-dependent capacity factor; and a fossil-based generating company with a fixed capacity and known fuel cost function. First, a complementarity model that determines the optimal capacity of the renewable-based producer considering a perfectly competitive market is proposed. Next, market players are assumed to compete in quantities à la Cournot to maximize their profits, being the generation expansion model formulated as a mathematical problem with equilibrium constraints. The relevance of properly setting the non-compliance penalty for each level of competition to comply with a given quota obligation is quantified and discussed using an stylized example. |
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| Keywords: | Generation expansion Renewable energy Electricity market Renewable energy certificates Competition |
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