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Appears in Collections:Economics Working Papers
Peer Review Status: Refereed
Title: Estimating the Price of ROCs
Author(s): Bryan, Jeffrey
Lange, Ian
MacDonald, Alexander
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Citation: Bryan J, Lange I & MacDonald A (2013) Estimating the Price of ROCs. Stirling Economics Discussion Paper, 2013-08.
Keywords: Renewable Obligation
JEL Code(s): Q48: Energy: Government Policy
Q58: Environmental Economics: Government Policy
L94: Electric Utilities
Issue Date: 31-Jul-2013
Date Deposited: 10-Jul-2013
Series/Report no.: Stirling Economics Discussion Paper, 2013-08
Abstract: The UK government introduced the Renewable Obligation (RO), a system of tradable quotas, to encourage the installation of renewable electricity capacity. Each unit of generation from renewables created a renewable obligation certificate (ROC). Electricity generators must either; earn ROCs through their own production, purchase ROCs in the market or pay the buy-out price to comply with the quota set by the RO. A unique aspect of this regulation is that all entities holding ROCs receive a share of the buy-out fund (the sum of all compliance purchases using the buy-out price). This set-up ensures that the difference between the market price for ROCs and the buy-out price should equal the expected share of the buy-out fund, as regulated entities arbitrage these two compliance options. The expected share of the buy-out fund depends on whether enough renewable generation is available to meet the quota. This analysis tests whether variables associated with renewable generation or electricity demand are correlated with, and thus can help predict, the price of ROCs.
Type: Working Paper
Affiliation: Economics

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