| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 706070 | The Electricity Journal | 2015 | 9 Pages |
Under the U.K. government's Renewable Obligation system of tradable quotas, each unit of generation from renewables creates a renewable obligation certificate (ROC). Electricity generators can earn ROCs through their own production, purchase ROCs in the market, or pay the buyout 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 buyout fund – the sum of all compliance purchases using the buyout price. This setup ensures that the difference between the market price for ROCs and the buyout price should equal the expected share of the buyout fund, as regulated entities arbitrage these two compliance options. An analysis finds that minimum temperature in the U.K. is correlated with the buyout price differential, while the price of natural gas is not.
