Modeling of a green certificate market

Abstract

The paper considers one of the economic mechanisms, stimulating the introduction of renewable energy sources (RES)—a green certificate market. A mathematical model was developed to describe a supply and demand balance in the electricity and green certificate markets simultaneously. The sellers of certificates are RES owners, who obtain certificates for each unit of electricity produced, and the buyers are consumers, who are obliged by law to buy a certain share of this electricity. Equilibrium structures of the power system including RES with stochastic operation conditions are calculated. The prices of electricity and certificates, as well as the total economic effect of the system are determined taking into account external costs (environmental damages). The paper shows that a mechanism of green certificates is not an ideal means for minimizing the impact of energy on the environment: the economic effect turns out to be smaller than the maximum possible one. However, this deviation is relatively small, therefore the green certificate market allows the external effects to be partially taken into account. Such a market creates incentives for investors, electricity producers and consumers to make power sources mix, modes of electricity production and consumption closer to the optimum ones in terms of the economy as a whole.