Bi-level optimization of design, operation, and subsidies for standalone solar/diesel multi-generation energy systems

Abstract Unlike grid–tied energy systems, wherein uniform renewable energy subsidies can be applied directly, the standalone multi-generation energy systems integrated with renewable energy in remote areas deserve to be subsidized specifically according to the local natural resources and energy demands. To establish an effective subsidy policy, the impacts of electrical and thermal subsidies for renewable energy on the system performance need to be investigated effectively, from the perspective of various stakeholders. In this study, a bi–level optimization model is proposed to obtain optimal design, operation, and subsidies for a standalone multi-generation energy system situated on a remote island; the system incorporates solar energy, fossil energy, and storage. Herein, the social cost to the society is set as the upper-level objective, and the private cost to the residents is set as the lower-level objective. The results indicate that production-based incentives of solar electrical energy and solar thermal energy jointly impact the design and operation of the energy system to minimize the social and private costs simultaneously; moreover, the demand response could further increase the flexibility of system operation, thus decreasing the system cost to a larger extent.