Switching from Feed-in Tariffs to a Tradable Green Certificate Market

Abstract

Feed-in tariffs have been the key support system for electricity from renewable sources in Spain and other European countries. However, given the growing criticism of this incentive scheme mainly due to its financial burden, the Spanish government has recently cancelled subsidies for any new electricity from renewable sources (RD-l 1/2012 2012). Since tariffs do not benefit from market signals, subsidies to some technologies may be either too high or too low to attain the regulator’s objectives. Existing literature on tradable green certificates suggests that a switch to a green certificates setup could be an efficient solution when substantial investments in renewable energy are already in place and technologies are at a mature stage. This chapter analyzes the implementation of a green certificates scheme as an instrument to foster renewables. We solve a sequential game where we analyze the interaction between the electricity pool and the tradable green certificates market. We focus on the retailer regulation design that would give lead to a decreasing green certificates demand and simulate the effect of such regulation on the price of certificates.