Tradable green certificates: The dynamics of coupled electricity markets

Liberalisation of markets previously under regulatory control require new instruments for environmental policy making, because subsidies and regulatory intervention does not conform to trans-national, liberalised markets. This is the case for newly regulated elec-tricity markets. An arrangement of Tradable Green Certificates (TGC) as a market-based subsidy for renewable energy has been proposed in several countries and already imple-mented in a few. However, introduction of TGCs have been postponed and delayed mainly due to the uncertainties involved for suppliers of renewables. Several studies have been undertaken using economic static comparative analysis and partial equilibrium mod-els. However, few of these analyses address the dynamic price formation process or the mechanisms that are important in the design of a well-working stable market. To analyse the stability of a TGC market, we construct a system dynamic model of the TGC market coupled with the Nordic electricity market (Nord Pool). A set of trading strategies for the participants under various marked designs is examined. These trading strategies were de-duced from laboratory experiments