Table of Contents

Acknowledgements …………………………………………………………………………………….. xiii

1 Introduction ………………………………………………………………………………………………. 1

I.I Research Motivation ………………………………………………………………………………….. 3

I.II Research Dilemma …………………………………………………………………………………….. 8

I.III Research Overview …………………………………………………………………………………… 15

2 Investment Model ……………………………………………………………………………………… 19

II.I Model Description …………………………………………………………………………………….. 21

II.II Simulated Scenarios ………………………………………………………………………………… 33

3 The Interactions Between Renewable and Carbon Reduction Policies …………. 35

III.I Introduction ……………………………………………………………………………………………. 37

III.II Simulation Results ………………………………………………………………………………….. 39

III.III Conclusions ………………………………………………………………………………………….. 45

4 Risk-Based Assessment of Renewable Energy Policies ……………………………… 47

IV.I Introduction ……………………………………………………………………………………………. 49

IV.II Simulation Results ………………………………………………………………………………….. 52

IV.III Conclusions ………………………………………………………………………………………….. 56

5 Market-Based Policies and Gaming Opportunities …………………………………….. 57

V.I Introduction …………………………………………………………………………………………….. 59

V.II Model Description …………………………………………………………………………………… 60

V.III Adaptive Learning Algorithm ………………………………………………………………….. 68

V.IV Results and Discussion …………………………………………………………………………… 70

V.V Conclusions …………………………………………………………………………………………….. 77

6 The Role of Regulatory Risk in Green Certificate Markets ………………………… 79

VI.I Introduction ……………………………………………………………………………………………. 81

VI.II Data ………………………………………………………………………………………………………. 85

VI.III Methodology …………………………………………………………………………………………. 89

VI.IV Empirical Analysis ………………………………………………………………………………… 93

VI.V Conclusions …………………………………………………………………………………………… 101

7 The Price Drivers of Green Certificate Markets ………………………………………… 103

VII.I Introduction ……………………………………………………………………………………………. 105

VII.II Differences and Similarities Between the Swedish and the UK Markets ….. 106

VII.III Data and Methodology …………………………………………………………………………. 108

VII.IV Empirical Results and Discussion …………………………………………………………. 114

VII.V Conclusions …………………………………………………………………………………………… 123

8 Green Certificate Options …………………………………………………………………………. 125

VIII.I Introduction …………………………………………………………………………………………. 127

VIII.II The Proposed Mechanism …………………………………………………………………….. 129

VIII.III Interactions with the Electricity Market ………………………………………………… 136

VIII.IV Conclusions ………………………………………………………………………………………… 141

9 Conclusions and Recommendations ……………………………………………………….. 143

IX.I Conclusions ……………………………………………………………………………………………. 145

IX.II Recommendations …………………………………………………………………………………. 149

Appendix …………………………………………………………………………………………………… 153

Results of the Sensitivity Analysis ………………………………………………………………… 155

Bibliography ……………………………………………………………………………………………… 167

Nomenclature ……………………………………………………………………………………………. 177

Summary …………………………………………………………………………………………………… 179

Introduction ………………………………………………………………………………………………… 181

Research Method, Results, and Insights ………………………………………………………. 183

Conclusions ………………………………………………………………………………………………… 187

List of Publications …………………………………………………………………………………….. 189

Curriculum Vitae ………………………………………………………………………………………. 191

NGInfra PhD Thesis Series on Infrastructures ………………………………………………. 193

Abstract

The European Union set ambitious goals regarding the production of electricity from renewable energy sources and the majority of European governments have implemented policies stimulating investments in such technologies. Support schemes differ in many aspects, not only in their effectivity and efficiency but also in the long-term incentives provided and in the financial risk involved for investors. This research compares the performance of different policy mechanisms analyzing the interaction between carbon reduction and renewable support policies. Using an agent-based model this research investigates how energy policy affects the investment decisions of generating companies by changing the profit and risk profiles of investment projects. Two econometric analyses are also presented which investigate the behavior of market participants in green certificate markets. These studies analyze the impact of regulatory uncertainty on the volatility of green certificate markets and the impact of regulatory frameworks on pricing behavior. Finally, this thesis proposes a novel approach to improve the performance of green certificate markets by providing more stable and predictable revenues for producers, lowering project risk. The proposed mechanism combines traditional certificate markets with a system of call options purchased in centralized auctions by the regulator.

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