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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.

Suggested Citation

  • 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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    References listed on IDEAS

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    Cited by:

    1. Munoz, Francisco D. & Pumarino, Bruno J. & Salas, Ignacio A., 2017. "Aiming low and achieving it: A long-term analysis of a renewable policy in Chile," Energy Economics, Elsevier, vol. 65(C), pages 304-314.
    2. Fang, Debin & Zhao, Chaoyang & Kleit, Andrew N., 2019. "The impact of the under enforcement of RPS in China: An evolutionary approach," Energy Policy, Elsevier, vol. 135(C).
    3. Laia, R. & Pousinho, H.M.I. & Melíco, R. & Mendes, V.M.F., 2016. "Bidding strategy of wind-thermal energy producers," Renewable Energy, Elsevier, vol. 99(C), pages 673-681.
    4. Amedeo Argentiero, Tarek Atalla, Simona Bigerna, Silvia Micheli, and Paolo Polinori, 2017. "Comparing Renewable Energy Policies in EU-15, U.S. and China: A Bayesian DSGE Model," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    5. Zhong-Hua Tian & Ze-Liang Yang, 2016. "Scenarios of Carbon Emissions from the Power Sector in Guangdong Province," Sustainability, MDPI, Open Access Journal, vol. 8(9), pages 1-14, August.
    6. Bao, Xiongjiantao & Zhao, Wenhui & Wang, Xiaomei & Tan, Zhongfu, 2019. "Impact of policy mix concerning renewable portfolio standards and emissions trading on electricity market," Renewable Energy, Elsevier, vol. 135(C), pages 761-774.
    7. Pineda, Salvador & Boomsma, Trine K. & Wogrin, Sonja, 2018. "Renewable generation expansion under different support schemes: A stochastic equilibrium approach," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1086-1099.

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