Optimal Feed-In Tariff Policies: The Role of Technology Manufacturers

35 Pages Posted: 25 Sep 2015 Last revised: 2 Nov 2018

See all articles by Shadi Goodarzi

Shadi Goodarzi

HEC Paris - Operations Management and Information Technology

Sam Aflaki

HEC Paris - Operations Management and Information Technology

Andrea Masini

HEC Paris - Operations Management and Information Technology

Date Written: September 24, 2015

Abstract

This paper models a multi-player environment comprising a grid operator responsible for meeting electricity demands, a photovoltaic (PV) manufacturer, customers who might install PV (solar) systems, and a regulator charged with setting an optimal feed-in tariff (FIT). The grid operator must meet exogenous electricity demand and also buy back all electricity (produced by PV systems) at the FIT set by a regulator, which seeks to minimize grid operator costs. Customers decide whether or not to invest in a PV system. Adoption rates affect the manufacturer and operator by (respectively) establishing the demand for PV and determining how much electricity is fed into the grid. The PV manufacturer's decision variable is the sales price per PV unit. The decisions of all players in the model are intertwined in a way that clearly affects their respective welfare. We demonstrate in particular how technology and market characteristics -- including PV manufacturing cost and market competition -- change the optimal decisions of players and thereby influence the effectiveness of FITs, the number of PV adopters, and the cost to provide the social benefit of on-demand electricity. Our findings confirm the importance of considering technology manufacturers when devising schemes to incentivize adoption of PV systems.

Keywords: Feed-in tariff policy, Renewables, Technology adoption

Suggested Citation

Goodarzi, Shadi and Aflaki, Sam and Masini, Andrea, Optimal Feed-In Tariff Policies: The Role of Technology Manufacturers (September 24, 2015). HEC Paris Research Paper No. MOSI-2015-1109. Available at SSRN: https://ssrn.com/abstract=2664967 or http://dx.doi.org/10.2139/ssrn.2664967

Shadi Goodarzi (Contact Author)

HEC Paris - Operations Management and Information Technology ( email )

1, rue de la Liberation
Jouy en Josas, 78351
France

Sam Aflaki

HEC Paris - Operations Management and Information Technology ( email )

1, rue de la Liberation
Jouy en Josas, 78351
France

Andrea Masini

HEC Paris - Operations Management and Information Technology ( email )

1, rue de la Liberation
Jouy en Josas, 78351
France

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