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Financial Risks for Green Electricity Investors and Producers in a Tradable Green Certificate Market
http://www.erasmusenergy.com/articles/36/1/Financial-Risks-for-Green-Electricity-Investors-and-Producers-in-a-Tradable-Green-Certificate-Market/Page1.html
Jacob Lemming
 
By Jacob Lemming
Published on 09/24/2007
 
Keywords: Tradable Green Certificates, Financial Risk, Forward Contracts
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Publication year: 

This paper analyzes financial risks in a market for Tradable Green Certificates (TGC), both from the perspective of existing renewable producers and potential investors in new renewable electricity generation capacity. The pricing mechanism for a consumer-based TGC market with perfect competition is described. A TGC system with wind turbines as the sole technology is analyzed. In this framework production from wind turbines and TGC prices will be negatively correlated, implying that a distinction between revenue and price fluctuations is important. Finally analytical expressions for revenue-variance-minimizing trading strategies are derived and an analysis of the demand and supply for financial hedging show that forward contracts will be traded at a risk premium.


Financial Risks for Green Electricity Investors and Producers in a Tradable Green Certificate Market

This paper analyzes financial risks in a market for Tradable Green Certificates (TGC), both from the perspective of existing renewable producers and potential investors in new renewable electricity generation capacity. The pricing mechanism for a consumer-based TGC market with perfect competition is described. A TGC system with wind turbines as the sole technology is analyzed. In this framework production from wind turbines and TGC prices will be negatively correlated, implying that a distinction between revenue and price fluctuations is important. Finally analytical expressions for revenue-variance-minimizing trading strategies are derived and an analysis of the demand and supply for financial hedging show that forward contracts will be traded at a risk premium.