Are the current incentives sufficient to drive the use of solar PV in the Colombian residential sector? - An analysis from the perspective of the game theory

Abstract

It is necessary to increase the use of renewable energy sources to supply the world's energy demand to mitigate the harmful effects of climate change. Many countries have incorporated the use of solar energy on a large scale. However, the use of photovoltaic (PV) systems at the residential level has been rather limited because many barriers to their implementation persist (e.g., high investment costs, insufficient government policies and incentives, and lack of knowledge in the implementation and operation of these systems). This paper aims to investigate how the interaction between prosumers and consumers can drive the use of PV systems at the residential level. The interaction is analyzed from the field of game theory. The payoffs of the players' strategies determine not only the Nash equilibrium but also the desirability of the interaction for both investment in the case of prosumer and consumption costs in the case of the consumer. Prosumer strategies consisted of selling power to the grid and to the consumer; selling only to the consumer; selling only to the grid; selling to the grid and giving to the consumer; and only giving to the consumer. The consumer strategies were to buy only from the grid or to buy from both the grid and the prosumer. The prosumer's investment in three sizes of PV systems (2.3, 2.7 and 3.6 kW) were analyzed; the amount of electricity produced was estimated using PVWatts and data from a Typical Meteorological Year in the city of Barranquilla, Colombia. The Net Present Value of each investment was calculated considering the prosumer's strategies and this indicator was taken to an equivalent annual cost to represent the prosumer's payment in the Nash equilibrium. On the other hand, for the consumer's payments, the annual energy purchase costs to supply their demand were used, according to the consumer's strategies. Analysis found that PV systems that can produce surpluses can be attractive to the prosumer if the tax on revenues received from the sale of energy to the grid is eliminated. Profitability is further improved if the prosumer is allowed to sell their surplus to other consumers, with the purchase price to the grid being the maximum price at which they can sell to other consumers. In turn, the cost savings for consumers will be greater to the extent that they can buy cheaper energy from prosumers. Based on these findings, countries such as Colombia, where there has not been a massive use of solar photovoltaic energy at the residential level, can stimulate investments in this sector by eliminating the income tax on the sales of surplus energy of small prosumers, without representing a loss of income for these countries.