Research on a Microgrid Subsidy Strategy Based on Operational Efficiency of the Industry Chain

Abstract

Government subsidy is a powerful tool to motivate the development of a new energy industry. At the early stage of microgrid development, for the sake of the cost and benefit issue, it is necessary for the government to subsidize so as to support and promote the development of microgrids. However, a big challenge in practice is how to optimize the operational efficiency of the microgrid industry chain with varying targets and methods of subsidy. In order to explore this problem, we construct a subsidy model based on the microgrid industry chain, involving government, investor, operator, equipment supplier, and user. Through calculation and solution of this model, we obtain price and return indicators of each microgrid industry chain participant when the subsidy target differs. Based on that, we contrast and compare the optimal subsidy strategy and influencing factors when operational efficiency indicators vary. Finally, we validate and analyze this model with numerical analysis and discuss the impact of development stage, technological level, and change in subsidy amount on the operational efficiency of the microgrid industry chain and on the returns of each participant. This result is of great significance to subsidy practice for microgrids and the development of microgrids.

The Impact of Government Subsidy on Renewable Microgrid Investment Considering Double Externalities

“…Chen et al [30] demonstrated the significant effect of price and cost subsidies on a microgrid energy storage system using a real options approach, which did not consider the electricity supply structure. Our paper is closely related to the works of Long and co-workers [8,31], who built a multistage incentive model for a microgrid project considering the microgrid industry chain and studied the impacts of government subsidies on various participants. However, since their work did not consider the economic rationales of government intervention, the regulator's decision relatively lacked a theoretical basis.…”

“…The objective of the social planner is to optimize social welfare, which includes the microgrid's profit, consumer surplus, externality benefits, and government cost. The consumer surplus can be written as v C = p max p * D(p)dp (8) where p * and p max are the optimal electricity price and maximum price, respectively. The social welfare in the centralized scenario is given by…”

“…It is notable Sustainability 2019, 11, 3168 3 of 15 that renewable microgrids can receive renewable energy subsidies, which have been established for distributed generators using renewable sources. Since there are differences of technology systems, market features, and stages of development between microgrids and large-scale distributed generation, the current incentive mechanism for distributed generators may not be appropriate for microgrids [8].…”

The Effects of Capital and Energy Subsidies on the Optimal Design of Microgrid Systems

“…The study suggested that energy storage subsidies combined with initial cost subsidies may play an important role in the diffusion of microgrid systems. The authors of [14] studied the role that government subsidies play on the operational efficiency of the microgrid industry chain. The authors developed a model based on game theory to investigate different subsidy strategies and market participants (e.g., government, investor, equipment supplier, operator, and user).…”

“…The aim of the project, which is funded by the World Bank, is to deploy hybrid mini-and microgrids to approximately one million Nigerian households and micro, small, and medium enterprises (MSMEs). Yet, despite the significant benefits that microgrids offer, their widespread deployment in rural electrification applications has been relatively slow due to their complicated financial and technical structure, including their high upfront costs, significant financial risks, and intricate business models [14]. Thus, in developing regions, it is common to find technical and financial support mechanisms offered by national and local governments or public-private partnerships.…”