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

Coulon, Michael, Khazaei, Javad and Powell, Warren (2015) SMART-SREC: a stochastic model of the New Jersey solar renewable energy certificate market. Journal of Environmental Economics and Management, 73. pp. 13-31. ISSN 0095-0696

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Abstract

Markets for solar renewable energy certificates (SRECs) are gaining in promi- nence in many states, stimulating growth of the U.S. 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 realis- tic, 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 liter- ature, 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.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HD Industries. Land use. Labour > HD9000 Special industries and trades > HD9502 Energy industries. Energy policy. Fuel trade
H Social Sciences > HG Finance > HG0101 Theory. Method. Relation to other subjects > HG0106 Mathematical models
T Technology > T Technology (General) > T0055.4 Industrial engineering. Management engineering > T0057 Applied mathematics. Quantitative methods
Depositing User: Michael Coulon
Date Deposited: 20 May 2015 08:25
Last Modified: 16 Mar 2017 02:02
URI: http://sro.sussex.ac.uk/id/eprint/53879

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