Title: Green electricity: credence purchases, risky credit sales and an honourable amount of fraud

Authors: Sunderasan Srinivasan

Addresses: Verdurous Solutions Private Limited, Mysore, India

Abstract: The credence quality of green electricity purchased by utilities at premium prices in recognition of the environmental characteristic is discussed. Reciprocally, project developers bear risks associated with building and operating plants, inter alia, from substitution by separately produced private and public goods, leading to a potential demand-withdrawal by consumers, and eventually triggering a default. Periodic state verification helps confirm the characteristics of electricity production at discrete points in time, yet leaving ample opportunity for the vendors to 'round-trip' utility power, or to pass off 'grey' electricity as 'green' electricity, garnering higher earnings. Such deception is often sought to be justified on the grounds of the interest costs incurred on delayed receipts from the utility, and as an internal insurance mechanism against the potential risk of eventual default. Such fraud is capped by an upper bound, beyond which, both, the benefits from state verification and the costs of state falsification rise.

Keywords: credence goods; credit risk; impure public good; optimal fraud; costly state verification; bid-to-win; green electricity.

DOI: 10.1504/IJGE.2015.075142

International Journal of Green Economics, 2015 Vol.9 No.2, pp.99 - 124

Received: 05 Oct 2015
Accepted: 22 Nov 2015
Published online: 04 Mar 2016 *

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