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Introducing a new market-based system using game theory approach to promote energy efficiency: case of Iranian energy market

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Abstract

Improving energy efficiency has always been a controversial issue in the world. As energy subsidies are somehow commonplace in some countries, this paper aims to use it as a way to improve energy efficiency. While various energy consumers pay different prices per a unit of energy, we used that as an advantage to propose a market scheme contributing to the enhancement of energy efficiency. To do so, we proposed tradable energy saving certificates (TESC) generated for energy savers so that they could be traded in the pre-mentioned market as a profit source for those investing in energy saving projects. The market structure consists of three main role players including an energy saver, an energy supplier, and an energy consumer, each of whom plays on behalf of their family members. The decision each player needs to make is TESC pricing, tariffs’ strategies, and TESC demanding respectively to optimize their own utility function and maximize their profit. To calculate each player’s best response and equilibria strategy, the Stackelberg game logic and backward induction solution is used. By considering a case study in Iran, the numerical results show a 3.6% improvement on energy efficiency, and 3.28 million cubic meters cut on the country’s daily natural gas consumption.

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Notes

  1. 1 MMBtu = 28.263682 m3 and 1 USD = 13500 Iranian Toman

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Authors and Affiliations

  1. School of Industrial Engineering, College of Engineering, University of Tehran, North Kargar Street, Tehran, Iran

    Zakhirehkar Sahih Amin & Iranmanesh Seyyed Hossein

  2. Faculty of Management, Kharazmi University, Tehran, Iran

    Momtazi Mohammadreza

Authors
  1. Zakhirehkar Sahih Amin
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  2. Iranmanesh Seyyed Hossein
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  3. Momtazi Mohammadreza
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Correspondence to Zakhirehkar Sahih Amin.

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Highlights

• A reliable energy saving scheme based on a market-based framework is introduced.

• The analysis of the rules and obligations alongside the identification of key role players is conducted in the proposed trading scheme.

• Tradable energy saving certificate (TESC) concept is introduced and analyzed.

• A Stackelberg game approach is adopted to probe into the market performance.

• A win-win situation is developed for each player participating in TESC trading.

• Results demonstrate a considerable amount of energy savings per day.

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Amin, Z.S., Hossein, I.S. & Mohammadreza, . Introducing a new market-based system using game theory approach to promote energy efficiency: case of Iranian energy market. Energy Efficiency 14, 59 (2021). https://doi.org/10.1007/s12053-021-09977-6

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