Estimation of the Put Option Value for Solar Power Plant Operators Participating in the Renewable Portfolio Standard (RPS) Spot Market

In this study, we employ a binomial lattice tree model to estimate the value of American put options granted to solar power plant operators under renewable portfolio standard schemes with different sub-markets.The analysis revealed that the value of these options is equivalent to approximately 7% of the total revenue, translating to an REC multiplier of approximately 0.15.PV operators do not pay a premium for the option to convert to fixed-price contracts in the spot market.This could mitigate the dual uncertainties of SMP and REC prices faced by spot market participants.However, this arrangement may disrupt optimal portfolio composition across sub-markets, with the cost of the option premium ultimately being passed on to electricity consumers.To address this issue, we propose charging market participants an appropriate premium for the option and eventually phasing out the spot market in favor of fixed-price contracts.