The Impact of Market Power on the Functioning of Tradable Green Certificates Schemes

Abstract

Quotas with Tradable Green Certificates (TGC) schemes have generally been regarded as an effective and cost-efficient way to promote electricity from renewable energy sources (RES-E). The theoretical analysis of the effectiveness and cost-effectiveness of TGC schemes has traditionally taken place assuming perfect competition in, both the electricity and TGC markets. However, these markets may not approach the conditions of a perfectly competitive market. This paper analyses the influence of market power in, both, the TGC and electricity markets on RES-E deployment, cost-effectiveness and cost distribution. The major conclusion is that market power should not be a concern. Market power does not affect the effectiveness of a quota with TGC system, i.e., it does not affect RES-E deployment, although market power on the supply side of markets may negatively affect the cost-effectiveness of the system and increase the cost burden for electricity consumers.