KhazaeiCoulonPowell-Apr2017.pdf (677.82 kB)
ADAPT: a price-stabilizing compliance policy for renewable energy certificates: the case of SREC markets
journal contribution
posted on 2023-06-09, 08:49 authored by Javad Khazaei, Michael Coulon, Warren B. PowellCurrently most Renewable Energy Certificate (REC) markets are defined based on targets which create an artificial step demand function resembling a cliff. This target policy produces volatile prices which can make investing in renewables a risky proposition. In this paper, we propose an alternative policy called Adjustable Dynamic Assignment of Penalties and Targets (ADAPT) which uses a sloped compliance penalty and a self-regulating requirement schedule, both designed to stabilize REC prices, helping to alleviate a common weakness of environmental markets. To capture market behavior, we model the market as a stochastic dynamic programming problem to understand how the market might balance the decision to use a REC now versus holding it for future periods (in the face of uncertain new supply). Then, we present and prove some of the properties of this market, and finally we show that this mechanism reduces the volatility of REC prices which should stabilize the market and encourage long-term investment in renewables.
History
Publication status
- Published
File Version
- Accepted version
Journal
Operations ResearchISSN
0030-364XPublisher
INFORMSExternal DOI
Issue
6Volume
65Page range
1429-1445Department affiliated with
- Business and Management Publications
Research groups affiliated with
- Quantitative International Finance Network Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2017-11-14First Open Access (FOA) Date
2017-11-14First Compliant Deposit (FCD) Date
2017-11-14Usage metrics
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