A Power Market Model with Renewable Portfolio Standards, Green Pricing and GHG Emissions Trading Programs

Models based on complementarity formulation have been a useful tool to simulate the interactions between environmental policies and the power market. This paper presents a power market model that considers renewable portfolio standards (RPS), greenhouse gas (GHG) emissions cap-and-trade and green pricing programs. These are three concurrent policies in the United States that are expected to be implemented to reduce our reliance of electricity on carbon intensity sources. Under these policies, electricity generated from renewable sources would incur little or no GHG costs, and also can be used to meet RPS, or sell into green pricing programs. Therefore, load serving entities (LSEs) would view electricity as differential products and price it differently based on its emission rate. As an illustration, the model is applied to analyze the interactions of three policies using a three-node power system. The result suggests that the green premium and the price of renewable energy credits (RECs) are closely related and the interactions among three policies can effectively increase profits earned by renewables generators. RECs market needs to be carefully designed to prevent double counting.