The Model with Continuous Variables
In Chap. 5, we developed a microeconomic model to investigate optimal combinations of feed-in tariffs (FITs) and capital subsidies for the adoption of solar photovoltaic (PV) power generation systems in the residential sector. In that model, it was assumed that a household, a potential adopter, is characterized by several variables related to PV generation. Then, we determined the levels of FIT and capital subsidy at which a household would adopt a PV system. Accordingly, we can determine combinations of FITs and capital subsidies at which a certain number of households adopt. However, in reality, whether a particular household adopts may make little sense; what a government is concerned with is the total number of adopters, and it will control FIT and capital subsidy levels so that the target amount of adoption may be achieved. Hence, in this chapter, we develop a model constructed with continuous variables: the variables that characterize a household take continuous values so that a government considers solely the amount of adoption. By using this model, we consider three optimality criteria: maximization of PV electricity, minimization of promotion cost, and maximization of social welfare. The same results are obtained as in Chap. 5 with respect to the optimal combinations of FITs and capital subsidies.