SMART-SREC: A stochastic model of the New Jersey solar renewable energy certificate market |
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Affiliation: | 1. Department of Business and Management, University of Sussex, Brighton BN1 9SL, UK;2. ORFE Department, Princeton University, Princeton, NJ 08544, USA;1. Ritsumeikan Global Innovation Research Organization, Ritsumeikan University, Kusatsu, Japan;2. Faculty of Economics, Ritsumeikan University, Kusatsu, Japan |
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Abstract: | Markets for solar renewable energy certificates (SRECs) are gaining in prominence in many states, stimulating growth of the US 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 realistic, 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 literature, 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. |
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Keywords: | Renewable energy certificates Green certificates Environmental markets New Jersey Solar generation Structural price model Feedback effect Regulatory policy |
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