Cleaner energy microgrids under market power and limited regulation in developing countries

Technical Deep Dive

Overview

This paper presents a game-theoretic model to study the design of policies for clean energy microgrids in developing countries with limited regulatory oversight. The key contributions are:

1. Developing a bi-level game model that represents a regulator setting price and feed-in tariff caps to maximize household economic surplus (HES), while a profit-maximizing diesel generator company (DGC) controls access and supply.
2. Applying the model to a real-world microgrid in Lebanon using high-resolution empirical data, generating insights on the techno-economic and regulatory tradeoffs.

Problem & Context

• In many developing countries, unreliable national electricity grids have led to the widespread adoption of neighborhood diesel generators, forming informal microgrids controlled by DGCs.
• These diesel-based microgrids suffer from high costs, significant pollution, and weak regulatory oversight.
• Households are increasingly deploying off-grid solar PV systems, but face challenges with curtailed excess generation and unreliable access.
• Prior studies have optimized microgrids in developing contexts, but largely neglected the market power of monopolistic DGCs.

Methodology

• The bi-level model represents a regulator setting price and feed-in tariff caps to maximize HES, while the DGC acts as a profit-maximizing agent controlling access and supply.
• The regulator's objective is to increase PV utilization, reduce diesel reliance, limit unmet demand, and lower electricity prices, without reducing DGC profits.
• The DGC can invest in its own PV and battery storage assets in addition to purchasing electricity from household PV owners.
• The model is applied to a microgrid in Lebanon using high-resolution household demand and solar capacity factor data.

Results

1. Increasing HES: The proposed model shows an 18% improvement in HES compared to the status quo, driven by a 10% decrease in electricity price and the sale of household PV excess at $0.12/kWh.
2. Reducing Renewable Curtailment: The model reduces wasted household PV excess generation from 58.8% to 6.2%.
3. Renewable Penetration: The renewable energy share reaches 60.1% under base conditions, approaching 100% at sufficiently high DGC budgets or PV-owner penetration.
4. Sensitivity to Budget: Increasing the DGC's budget leads to substantial HES gains, from 18% improvement at the base budget to 41% at non-binding budgets.
5. Sensitivity to PV-Owner Penetration: HES improvements are observed when PV-owner penetration exceeds 10%, peaking at around 90% penetration.
6. Unmet Demand Limitation: Extending regulation to directly limit unmet demand leads to a further 10% increase in HES under the base case.

Limitations & Uncertainties

• The model assumes the microgrid operates independently of the national grid. Exploring partial interconnection scenarios could provide additional insights.
• The analysis is based on a single case study; applying the model to other developing country contexts could yield different results.
• The study does not consider the dynamic evolution of PV-owner penetration over time, which could be an interesting extension.

What Comes Next

Future research directions include:

• Investigating scenarios with partial interconnection to the national grid.
• Analyzing the impact of time-varying electricity prices and feed-in tariffs over the planning horizon.
• Exploring models that account for the dynamic evolution of PV-owner penetration in the microgrid.