Experimental economics for electricity market design

This study reports of a series of experiments of the proposed Swedish-Norwegian green certificates market. The experiments were carried out at NTNUs Experimental Economics Energy Market Laboratory (EEEMiL) using graduate students from engineering and economics as subjects. The main purpose of the experiments was to test how a) floating versus fixed price caps and b) banking of TGCs influenced the price formation process. Assumptions concerning the experiments were gradually changed to a more complex and realistic representation of the TGC market through group I to IV of the experiments. Experiments in group I and II focus on trade between producers and consumers with homogeneous and heterogeneous production costs, respectively. Group I experiments did not converge towards competitive equilibrium (C.E), while the group II experiments did. In the group III and IV experiments, we introduced investors with homegenous and heterogeneous initial market shares, respectively. In both groups of experiments, price bubbles appeared persistently with prices far above C.E. The study concludes that floating price caps combined with banking and yearly TGC obligations will have a destabilising long-term effect on the TGC market.