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Green Certificates and Market Power on the Nordic Power Market

Abstract:
The purpose of this study is to elucidate under which circumstances, how, and to what extent market power on a Tradable Green Certificates (TGC) market can be used to affect an entire electricity market. There are basically two reasons for being concerned with this. One is that a small number of companies may have exclusive access to first rate sites for wind power generation. The other is that withdrawal of a small number of TGCs implies a multiple reduction of electricity consumption, with corresponding increases of end user prices. We formulate both an analytical model to investigate economic principles and a numerical model based on that to investigate the Swedish TGC market operating in a setting of a common Nordic electricity market. The analysis shows that Swedish producers may exercise market power using the TGC-market but that this problem will be eliminated by opening the TGC-market for other Nordic countries. Keywords: Renewable energy, Electricity, Green certificates, Market power, Nordic power market

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Energy Specializations: Energy Efficiency; Electricity – Markets and Prices ; Electricity – Policy and Regulation; Energy and the Environment – Other

JEL Codes:
Q55 - Environmental Economics: Technological Innovation
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q59 - Environmental Economics: Other

Keywords: Renewable energy, Electricity, Green certificates, Market power, Nordic power market

DOI: 10.5547/01956574.33.2.5

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Published in Volume 33, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.