An incentive mechanism to promote residential renewable energy consumption in China's electricity retail market: A two-level Stackelberg game approach

This paper proposes an incentive mechanism considering three different participants: the government, retailers and residents. To comprehensively understand the impact factors contributing to renewable energy consumption, the incentive mechanism is conducted in two forms, monetary incentive and price incentive, under the regulation of government and retailers. A two-level Stackelberg game is formulated to operate the proposed incentive mechanism. In the upper-level game, the government first sets the optimal monetary incentive to minimize its cost and then retailers determine the optimal incentives to maximize their profits. Similarly, in the lower-level game, the retailers send the incentive signals to residents, directing them choose the optimal renewable energy consumption ratios to maximize their welfare. The existence and uniqueness of Stackelberg Equilibrium are proved and the optimal strategies for each participant are given. To better describe the characteristics of residents, the seasonal variation of power demand and renewable energy, such as photovoltaic and wind power, is taken into consideration in the case study. The results indicate that, first, the cooperation of government and retailers raises the consumption ratio by 51.80% compared with 26.03% of individual participation of retailers in the winter typical day, which is the most effective seasonal day to operate the proposed incentive mechanism. Second, monetary incentive and price incentive can both promote renewable energy consumption, but the enhancement with price incentive is 77.04%, which is more than 51.80% with monetary incentive, in the winter typical day as well. The results also suggest that the proposed incentive mechanism should be applied to strengthen the electricity retail market position and achieve the carbon reduction goals.