The impact of decoupling the timing of production and consumption of renewable-electricity certificates on certificate prices

This paper considers how the existing practice of decoupling the timing of production and consumption of European renewable-electricity certificates affects the certificate price, compared to a coupled design where certificates can only be consumed when the associated renewable electricity is generated. In contrast to the decoupled design, the coupled design prohibits false renewable claims. Abstracting from effects on consumer trust in the system, we show that the decoupled design decreases certificate prices when renewable generation is abundant. Our analytical framework illustrates two mechanisms that cause price differences between the two designs, one based on scarcity of renewable electricity and one based on splitting up aggregate renewable generation into its constituent parts. The latter mechanism increases the price in the decoupled design, while the former mechanism, which is particularly relevant when renewable generation is abundant, decreases it. We perform a numerical analysis of the 2023 European certificate market and find that, typically, certificates are abundant and that a coupled design results in a € 1.31/MWh higher price. Finally, we analyze several scenarios mirroring European trends where the share of renewable generation increases, resulting in zero prices in the decoupled design and positive prices in the coupled design.