An economic model for residential energy consumption, generation, storage and reliance on cleaner energy

Notes on the Economics of Residential Hybrid Energy System

“…Specifically, a hybrid-prosumer with a higher P EC has a lower demand for energy consumption, a lower demand for energy services and a higher shadow price of energy services (see Equation 6). P EC does not affect the optimal level of efficiency rating (β), which only depends on the hybrid-prosumer's income level [47].…”

“…Such households are "more interested in covering most or all of their consumption and may not be interested in reducing consumption, or may also be involved in home expansion or other energy intensive activities" [41]. Fikru et al [47] find that energy consumption of a prosumer could be higher than the energy consumption of a comparable grid dependent household. This is because households that generate energy have a lower valuation for energy services because of their ability to generate energy onsite.…”

“…In this section, we present a theoretical approach that can be used to evaluate the economic decision-making of a representative rational hybrid-prosumer. Following Sun et al [1], we set up an economic model for distributed energy prosumers, but instead of maximizing a utility function based on power load, the prosumer optimizes a utility that depends on energy services, as in Sanstad [50] and Fikru et al [47]. Relative to the existing literature, the model presented here allows for multiple sources of renewable energy instead of one, and it formalizes the levels at which the hybrid-prosumer needs to make production and consumption related decisions.…”

“…0 < α < 1 to ensure diminishing marginal utility. Using a different utility function, such as a Cobb-Douglas function as in Fikru et al [47], does not alter the major implications of the model. Energy, whether it is purchased from the grid or produced onsite, is transformed into energy services by using energy-conversion technologies such as furnaces, space heaters, and pumps.…”

“…Following, Sanstand [50] and Guertin et al [43], the relationship between energy consumed, energy services, and the efficiency of a given technology is presented as E u = βE c where β is the technical efficiency of the technology and β ∈ (0, β max ). The cost of buying a conversion technology with a β efficiency rating is given by β 2 /2, where the cost function is continuous, non-decreasing, and strictly convex in β [47]. This means that a one unit increase in efficiency costs more on the margin if the initial level of efficiency is relatively high compared to the case where the initial level is low.…”