Optimal Behaviour in Solar Renewable Energy Certificate (SREC) Markets

Shrivats, Arvind; Jaimungal, Sebastian

doi:10.48550/arxiv.1904.06337

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“…One clear pattern seen in Figure 2 is the existence of distinct regimes of generation / trading. This pattern also arises in the single-agent problem (see [52]). At low levels of SREC inventory, and towards the end of the period, firms in both sub-populations generate / purchase until the marginal cost of producing / purchasing an additional SREC exceeds P .…”

Section: Definition 41 (Mean Field Distribution Of States)mentioning

confidence: 67%

“…In [43], the authors go one step further, proposing an alternative SREC market design in order to stabilize SREC prices. [52] flips the typical focus of works in SREC markets, using an exogenous price process as an input to model optimal behaviour on the part of a regulated agent in an SREC market, conducting numerical simulation studies to understand and characterize the nature of the firm's optimal controls.…”

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confidence: 99%

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A Mean-Field Game Approach to Equilibrium Pricing in Solar Renewable Energy Certificate Markets

Shrivats¹,

Firoozi²,

Jaimungal³

2020

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SREC markets are a market-based system designed to incentivize solar energy generation. A regulatory body imposes a lower bound on the amount of energy each regulated firm must generate via solar means, providing them with a certificate for each MWh generated. Regulated firms seek to navigate the market to minimize the cost imposed on them, by modulating their SREC generation and trading activities. As such, the SREC market can be viewed through the lens of a large stochastic game with heterogeneous agents, where agents interact through the market price of the certificates. We study this stochastic game by solving the mean-field game (MFG) limit with sub-populations of heterogeneous agents. Our market participants optimize costs accounting for trading frictions, cost of generation, SREC penalty, and generation uncertainty. Using techniques from variational analysis, we characterize firms' optimal controls as the solution of a new class of McKean-Vlasov FBSDE and determine the equilibrium SREC price. We further prove that MFG strategy has the -Nash property for the finite player game. Finally, we numerically solve the MV-FBSDEs and conclude by demonstrating how firms behave in equilibrium using simulated examples.

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Section: Definition 41 (Mean Field Distribution Of States)mentioning

confidence: 67%

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confidence: 99%