Investment decisions in distributed renewable energy considering economic performance and life-cycle environmental impact

Abstract

Using renewable energy is suggested as an environmentally superior strategy in lots of recent literature. However, the life-cycle effect of using distributed renewable energy (DRE) on the environment is still not well understood. In this paper, we adopt a perspective of life-cycle environmental impact and analytically investigate investment decisions in DRE with the consideration of both profit and environmental impact. According to the presence or absence of electricity from the utility firm, we build a cost minimization model respectively. The established models can capture uncertainty in both the supply of and demand for electricity. We make comparisons on the total environmental impact and profit between different investment choices in DRE. The result shows that an increase in the DRE generation can lead to environment improvement only under some certain conditions. We find that the intermittency of renewable energy sources and the high-emission and high-operating-cost of backup energy sources affect the investment decisions in DRE. We also investigate the impact of the utility firm on investment decisions in DRE from economic and environmental perspectives. We provide the distributed generator’s selling price range and the utility firm’s retail price range such that the incentive compatible region is nonempty.