Towards Strategic Local Power Network Decarbonization: A Stackelberg Game Analysis

Abstract

Many governments have implemented the Renewable standard portfolio (RPS) policy to enforce power utilities to procure a minimum amount of energy supply from renewable resources. We construct a two-stage Stackelberg game to explore the strategic behaviors of the power utility, the solar farm, and the prosumers under a given RPS policy. The power utility acts as the leader to decide the capacity subsidy to incentivize his prosumers and the solar farm to invest in renewables, with the objective of profit-maximization. When facing the power utility's decisions, the prosumers and the solar farm compete with each other to make the renewable investment decisions. Each prosumer seeks to minimize the total cost of energy consumption and renewable investment. The objective of the solar farm is to maximize his profit. We completely characterize the equilibrium of the dynamic game considering different capital costs. It is interesting to find that the prosumers are more willing to invest in solar panels than the solar farm. In particular, when the prosumers and the solar farm have the same capital costs, the prosumers' total renewable investment is no less than that of the solar farm. Numerical experiments based on real-world data show that a higher market competition leads to a higher total renewable investment and a lower overall system cost.