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Renewable-based generation expansion under a green certificate market

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  • Pineda, Salvador
  • Bock, Andreas

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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  • Pineda, Salvador & Bock, Andreas, 2016. "Renewable-based generation expansion under a green certificate market," Renewable Energy, Elsevier, vol. 91(C), pages 53-63.
    • Handle: RePEc:eee:renene:v:91:y:2016:i:c:p:53-63
    DOI: 10.1016/j.renene.2015.12.061
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