Non-linear model to promote energy efficiency programs in power distribution companies

Abstract

Power distribution companies (DISCOs) play an important role in promoting energy efficiency (hereinafter EE), mainly due to the fact that they have detailed information regarding their clients’ consumption patterns. However, under the traditional regulatory framework, DISCOs have disincentives to promote EE, due to the fact that a reduction in sales also means a reduction in their revenues and profits. This paper studies two models of the Principal-Agent bilevel type in order to analyze possible economic effects of implementing different incentive mechanisms to foster EE in DISCOs. The main difference between both models is that uncertainty in energy savings is considered by the electricity regulatory institution in only one of the models. In terms of the results, it is observed that in general terms, it is more convenient for the regulator to adopt a performance-based incentive mechanism than a payment scheme financing only the fixed costs of implementing EE programs.