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Estimating the Price of ROCs

Author

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  • Bryan, Jeff
  • Lange, Ian
  • MacDonald, Alex

Abstract

The UK government introduced the Renewable Obligation (RO), a system of tradable quotas, to encourage the installation of renewable electricity capacity. Each unit of generation from renewables created a renewable obligation certificate (ROC). Electricity generators must either; earn ROCs through their own production, purchase ROCs in the market or pay the buy-out price to comply with the quota set by the RO. A unique aspect of this regulation is that all entities holding ROCs receive a share of the buy-out fund (the sum of all compliance purchases using the buy-out price). This set-up ensures that the difference between the market price for ROCs and the buy-out price should equal the expected share of the buy-out fund, as regulated entities arbitrage these two compliance options. The expected share of the buy-out fund depends on whether enough renewable generation is available to meet the quota. This analysis tests whether variables associated with renewable generation or electricity demand are correlated with, and thus can help predict, the price of ROCs.

Suggested Citation

  • Bryan, Jeff & Lange, Ian & MacDonald, Alex, 2013. "Estimating the Price of ROCs," SIRE Discussion Papers 2013-122, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:569
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    File URL: http://hdl.handle.net/10943/569
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    References listed on IDEAS

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    1. El-Agraa,Ali M., 2011. "The European Union," Cambridge Books, Cambridge University Press, number 9781107007963.
    2. Mitchell, C. & Bauknecht, D. & Connor, P.M., 2006. "Effectiveness through risk reduction: a comparison of the renewable obligation in England and Wales and the feed-in system in Germany," Energy Policy, Elsevier, vol. 34(3), pages 297-305, February.
    3. El-Agraa,Ali M., 2011. "The European Union," Cambridge Books, Cambridge University Press, number 9781107400115.
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    Cited by:

    1. Di Cosmo, Valeria & Malaguzzi Valeri, Laura, 2018. "Wind, storage, interconnection and the cost of electricity generation," Energy Economics, Elsevier, vol. 69(C), pages 1-18.
    2. Hast, A. & Syri, S. & Jokiniemi, J. & Huuskonen, M. & Cross, S., 2015. "Review of green electricity products in the United Kingdom, Germany and Finland," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 1370-1384.
    3. Wȩdzik, Andrzej & Siewierski, Tomasz & Szypowski, Michał, 2017. "Green certificates market in Poland – The sources of crisis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 490-503.

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    Keywords

    Renewable Obligation; Arbitrage; Electricity;
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