Solar Renewable Energy Certificate Markets: Assessing the Volatility Impact

Many countries and U.S. states have implemented rules, policies, and financial incentives to promote renewable energy adoption. Renewable Energy Certificates subsidize investment but their price is subject to market conditions. Uncertainty due to fluctuating certificate prices has allegedly discouraged investment in solar photovoltaic installation. In this paper, I assess the impact of certificate price volatility on a residential investor’s expected utility. The goal is to determine the extent to which uncertainty related to certificate volatility will decrease solar panel investment rates. In simulations with more price volatility than observed in the well-established New Jersey certificate program, the variance of certificate revenue does not significantly impact an investor’s expected utility from a residential solar project. I would like to express thanks to Professor Steven Fazzari for agreeing to serve as my faculty advisor. Professor Fazzari provided invaluable backing and direction, and I am especially grateful for his time, attention, enthusiasm, and willingness to support my topic. Thanks also to Professors Pierangelo De Pace, Rodolfo Manuelli, and Frank Felder for taking the time to speak with me. Each offered insight that helped enrich this project. Finally, I would like to thank and acknowledge Professors Bruce and Dottie Petersen for their feedback and guidance throughout the process and for their dedication and commitment to the Economics Department Honors Program.