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An analytic model of an environmentally friendly electricity market

Eirik S. Amundsen and Fridrik Baldursson ()

MPRA Paper from University Library of Munich, Germany

Abstract: There is concern that prices in a market for Green Certificates (GCs) primarily based on volatile wind power will fluctuate excessively, leading to corresponding volatility of electricity prices. Applying a rational expectations simulation model of competitive storage and speculation of GCs the paper shows that the introduction of banking of GCs may reduce price volatility considerably and lead to increased social surplus. Banking lowers average prices and is therefore not necessarily to the benefit of “green producers”. Proposed price bounds on GC-prices will reduce the importance of banking and even of the GC system itself.

Keywords: Electricity; Environment; Commodity Speculation; Green Certificates; Marketable permits; Uncertainty (search for similar items in EconPapers)
JEL-codes: C63 Q28 Q48 Q42 (search for similar items in EconPapers)
Date: 2003
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Published in Icelandic Journal of Science and Mathematics 2.1(2003): pp. 1-9

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Handle: RePEc:pra:mprapa:10772