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SMART-SREC: A stochastic model of the New Jersey solar renewable energy certificate market

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  • Coulon, Michael
  • Khazaei, Javad
  • Powell, Warren B.

Abstract

Markets for solar renewable energy certificates (SRECs) are gaining in prominence in many states, stimulating growth of the US solar industry. However, SREC market prices have been extremely volatile, causing high risk to participants and potentially less investment in solar power generation. Such concerns necessitate the development of realistic, flexible and tractable models of SREC prices that capture the behavior of participants given the rules that govern the market. We propose an original stochastic model called SMART-SREC to fill this role, building on established ideas from the carbon pricing literature, and including a feedback mechanism for generation response to prices. We calibrate the model to the New Jersey market and backtest it, analyzing parameter sensitivity and demonstrating its ability to reproduce historical dynamics. Finally, we run simulations to investigate the role and impact of regulatory parameters, thus providing insight into the crucial role played by market design.

Suggested Citation

  • Coulon, Michael & Khazaei, Javad & Powell, Warren B., 2015. "SMART-SREC: A stochastic model of the New Jersey solar renewable energy certificate market," Journal of Environmental Economics and Management, Elsevier, vol. 73(C), pages 13-31.
    • Handle: RePEc:eee:jeeman:v:73:y:2015:i:c:p:13-31
    DOI: 10.1016/j.jeem.2015.05.004
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    7. Arvind Shrivats & Dena Firoozi & Sebastian Jaimungal, 2020. "A Mean-Field Game Approach to Equilibrium Pricing in Solar Renewable Energy Certificate Markets," Papers 2003.04938, arXiv.org, revised Aug 2021.
    8. Dena Firoozi & Arvind V Shrivats & Sebastian Jaimungal, 2021. "Principal agent mean field games in REC markets," Papers 2112.11963, arXiv.org, revised Jun 2022.
    9. Yanbin Xu & Jiaxin Ma & Yuqing Wang & Ming Zeng, 2023. "Assessing the Effects of Tradable Green Certificates and Renewable Portfolio Standards through Demand-Side Decision-Making Simulation: A Case of a System Containing Photovoltaic Power," Energies, MDPI, vol. 16(8), pages 1-29, April.
    10. Hustveit, Magne & Frogner, Jens Sveen & Fleten, Stein-Erik, 2017. "Tradable green certificates for renewable support: The role of expectations and uncertainty," Energy, Elsevier, vol. 141(C), pages 1717-1727.
    11. Arvind Shrivats & Sebastian Jaimungal, 2019. "Optimal Behaviour in Solar Renewable Energy Certificate (SREC) Markets," Papers 1904.06337, arXiv.org, revised Apr 2020.
    12. Baamonde-Seoane, María A. & Carmen Calvo-Garrido, María del & Coulon, Michael & Vázquez, Carlos, 2021. "Numerical solution of a nonlinear PDE model for pricing Renewable Energy Certificates (RECs)," Applied Mathematics and Computation, Elsevier, vol. 404(C).
    13. Hu, Jing & Harmsen, Robert & Crijns-Graus, Wina & Worrell, Ernst, 2018. "Barriers to investment in utility-scale variable renewable electricity (VRE) generation projects," Renewable Energy, Elsevier, vol. 121(C), pages 730-744.
    14. Arvind V. Shrivats & Dena Firoozi & Sebastian Jaimungal, 2022. "A mean‐field game approach to equilibrium pricing in solar renewable energy certificate markets," Mathematical Finance, Wiley Blackwell, vol. 32(3), pages 779-824, July.
    15. Zhao, Chuandang & Xu, Jiuping & Wang, Fengjuan & Xie, Guo & Tan, Cheng, 2024. "Economic–environmental trade-offs based support policy towards optimal planning of wastewater heat recovery," Applied Energy, Elsevier, vol. 364(C).
    16. Giest, Sarah & Mukherjee, Ishani, 2018. "Behavioral instruments in renewable energy and the role of big data: A policy perspective," Energy Policy, Elsevier, vol. 123(C), pages 360-366.
    17. Helgesen, Per Ivar & Tomasgard, Asgeir, 2018. "An equilibrium market power model for power markets and tradable green certificates, including Kirchhoff's Laws and Nash-Cournot competition," Energy Economics, Elsevier, vol. 70(C), pages 270-288.
    18. Javad Khazaei & Michael Coulon & Warren B. Powell, 2017. "ADAPT: A Price-Stabilizing Compliance Policy for Renewable Energy Certificates: The Case of SREC Markets," Operations Research, INFORMS, vol. 65(6), pages 1429-1445, December.
    19. Steven Campbell & Yichao Chen & Arvind Shrivats & Sebastian Jaimungal, 2021. "Deep Learning for Principal-Agent Mean Field Games," Papers 2110.01127, arXiv.org.
    20. Lee, Minhyun & Hong, Taehoon & Yoo, Hyunji & Koo, Choongwan & Kim, Jimin & Jeong, Kwangbok & Jeong, Jaewook & Ji, Changyoon, 2017. "Establishment of a base price for the Solar Renewable Energy Credit (SREC) from the perspective of residents and state governments in the United States," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 1066-1080.
    21. Martina Assereto & Julie Byrne, 2020. "The Implications of Policy Uncertainty on Solar Photovoltaic Investment," Energies, MDPI, vol. 13(23), pages 1-20, November.

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