Guarantees of origin and competition in the spot electricity market

Abstract We study the effect of introducing a market for green energy attributes on the market for the energy itself. In Europe, renewable energy producers receive Guarantees of Origin (GOs) that they can sell to consumers who wish to declare their electricity consumption as “green”. We introduce GOs in a model of the spot electricity market with price competition and capacity constraints. As GOs are issued only for dispatched electricity, we find that the GO market has a pro‐competitive effect on the spot electricity market, leading to reduced electricity prices. Importantly, this pro‐competitive effect disappears if the GO market were to be restricted by the transmission capacity in the spot market.