Game-theory approach to consumer incentives for solar energy

Solar energy is currently not competitive with fossil fuels. Fossil fuel price increases may eventually allow solar to compete, but incentives can change the relative price between fossil fuel and solar energy, and make solar compete sooner. Examples are developed of a new type of competitive game using solar energy incentives. Competitive games must have players with individual controls and conflicting objectives, but recent work also includes incentives offered by one of the players to the others. In the incentive game presented here, the Government acts as the leader and offers incentives to consumers, who act as followers. The Government incentives offered in this leader-follower (Stackelberg) game reduce the cost of solar energy to the consumer. Both the Government and consumers define their own objectives with the Government determining an incentive (either in the form of a subsidy or tax) that satisfies its objective. The two hypothetical examples developed show how the Government can achieve a stated solar utilization rate with the proper incentives. In the first example the consumer's utility function guarantees some purchases of solar energy. In the second example, the consumer's utility function allows for no solar purchases because utility is derived only from the amount ofmore » energy used and not from the source of the energy. The two examples discuss both subsidy and tax incentives, with the best control over control use coming from fossil fuel taxes dependent upon the amount of solar energy used. Future work will expand this static analysis to develop time varying incentives along a time and quantity dependent learning curve for the solar industry.« less