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

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.