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Nexus between renewable energy certificates and electricity prices in India: Evidence from wavelet coherence analysis

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  • Shrestha, Anil
  • Kakinaka, Makoto

Abstract

Numerous studies have evaluated India's renewable energy certificate (REC) market, but the relationship between REC and electricity prices has remained unexplored. This study investigates how this relationship has evolved in India with the maturation of the REC market. We employ a partial wavelet coherence approach to uncover the underlying bivariate dynamic relationship at different times and scales after the elimination of the influences of other variables, such as the industrial production index and coal price. This analysis provides several important results. First, REC prices mainly co-moved with electricity prices in the medium term, ranging from 3 to 15 months. Second, in these co-movements, electricity price movements mostly led REC price movements. Third, REC and electricity prices showed a positive relationship at the initial or immature stage of the REC market over the scale of 3–9 months but later reversed to a negative relationship over the scale of 11–15 months as the market matured. We propose two channels related to market structure to explain the reversal of the direction of the association between REC and electricity prices.

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  • Shrestha, Anil & Kakinaka, Makoto, 2023. "Nexus between renewable energy certificates and electricity prices in India: Evidence from wavelet coherence analysis," Renewable Energy, Elsevier, vol. 204(C), pages 836-847.
    • Handle: RePEc:eee:renene:v:204:y:2023:i:c:p:836-847
    DOI: 10.1016/j.renene.2023.01.068
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