The socially optimal energy storage incentives for microgrid: A real option game-theoretic approach

Nowadays, as microgrid development has been limited by the high cost of its energy storage system (ESS), many relevant literatures on applied energy have emphasized the role of ESS incentive policies for microgrid. However, since energy storage technology in microgrid is complex, it still remains an issue of high difficulty to derive the optimal ESS incentives for microgrid development. In this study, a real option game model, which combines evolutionary game theory with real options, is developed to explore the socially optimal ESS incentive policies for microgrid by utilizing the fluctuation amplitudes and equilibrium positions of microgrid development under different ESS policy options, that include the initial cost subsidy, the feed-in tariffs (FIT), and the production tax credit. Moreover, we provide a numerical example to simulate and compare the fluctuation results of microgrid development under different ESS incentive policies. The results indicate that the FIT has the greatest effect on microgrid development. However, regarding the limitations of government's incentive mechanisms, its combination with other ESS incentive policies, e.g., initial cost subsidy, and tax credit, is shown to be more effective for microgrid development than the FIT only. In addition, appropriately extending the implementation period of FIT can also help to overcome the limitations of FIT mechanism so as to effectively facilitate the development of microgrid.