Optimal management of green certificates in the Swedish-Norwegian market
MetadataShow full item record
Original versionJournal of Energy Markets. 2017, 10 (2), 1-39. 10.21314/JEM.2017.159
We propose and investigate a valuation model for the income of selling tradeable green certificates (TGCs) in the Swedish–Norwegian market, formulated as a singular stochastic control problem. Our model takes into account the production rate of renewable energy from a “typical” plant, the price of TGCs and the cumulative amount of certificates sold.We assume that the production rate has a dynamics given by an exponential Ornstein–Uhlenbeck process, and the logarithmic TGC price has a dynamics given by a Lévy process. For this class of dynamics, we find optimal decision rules for the state variables and a closed-form solution to the control problem. A case study of ICAP prices and wind production data from Denmark backs up our model choice and shows the relevance of this pricing approach.