Optimal taxing strategy to increase competitiveness of renewable energy utility suppliers

Zvikomborero Matenga, Johannes Fedderke, Janis Terpenny

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

The effects of climate change are starting to have an economic impact on developing economies. The heavy use of fossil fuels and the high investments costs required to utilize renewable energy sources in electricity generation exacerbates this problem by limiting entry of renewable energy sources. Unlike subsidies, implementing an optimal taxing policy on conventional energy sources can mitigate the competitive disadvantage of renewable source in terms without placing a steeper financial burden on the government. The main objective of this project is to determine an optimal taxing strategy that minimizes social costs due conventional energy sources and the optimal pricing strategies implemented by competing firms where the incumbent firm uses conventional energy sources and the entrant firm introduces renewable energy sources. The demands rates for both services does not only depend on the price levels but also on the consumers awareness of the environmental impacts due to conventional energy sources. This project shows that implementing an optimal taxing strategy raises the prices of fossil fuel energy therefore minimizing the pricing disadvantage that renewable energy utilities face. Using a three player Stackelberg differential game model where the policy maker is the leader and two competing utilities are the followers, an optimal pricing path and taxing policy are derived for the utility firms and the policy maker respectively.

Original languageEnglish (US)
Title of host publicationIISE Annual Conference and Expo 2019
PublisherInstitute of Industrial and Systems Engineers, IISE
ISBN (Electronic)9781713814092
StatePublished - 2019
Event2019 Institute of Industrial and Systems Engineers Annual Conference and Expo, IISE 2019 - Orlando, United States
Duration: May 18 2019May 21 2019

Publication series

NameIISE Annual Conference and Expo 2019

Conference

Conference2019 Institute of Industrial and Systems Engineers Annual Conference and Expo, IISE 2019
CountryUnited States
CityOrlando
Period5/18/195/21/19

All Science Journal Classification (ASJC) codes

  • Control and Systems Engineering
  • Industrial and Manufacturing Engineering

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