Journal
ENERGY POLICY
Volume 31, Issue 1, Pages 21-32Publisher
ELSEVIER SCI LTD
DOI: 10.1016/S0301-4215(02)00114-3
Keywords
tradable green certificates; financial risk; forward contracts
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This paper analyzes financial risks in a market for tradable green certificates (TGC) from two perspectives; existing renewable producers and potential investors in new renewable electricity generation capacity. The equilibrium pricing mechanism for a consumer-based TGC market is described and a market with wind turbines as the sole renewable technology is analyzed. In this framework, TGC prices and fluctuations in production from wind turbines will be negatively correlated and, as a result, TGC price fluctuations can actually help decrease the total financial risk. Based on this recognition, analytical expressions for revenue-variance-minimizing trading strategies are derived and an analysis of the demand and supply for financial hedging is used to show that forward contracts will be traded at a risk premium. (C) 2002 Elsevier Science Ltd. All rights reserved.
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