Policy incentives and social cost of emissions for promoting decentralized energy production: A life cycle cost analysis

Abstract

Abstract Distributed energy systems (DES) are the focus of increasing attention as a means of improving the sustainability performance of power and heat production. However, many studies have shown that distributed energy systems have a higher cost than conventional centralized energy generation (CCEP). Previous studies on economic analysis of DES has generally overlooked the economic impacts of policy incentives, business depreciation, and emission taxes. This research aims to examine the reduction of the life cycle cost (LCC) for DES when the impact of U.S. policy incentives and emission taxes are considered. We first used a parametric model to find the optimal DES solution for three commercial building types under five climate zones in the U.S. Then, we calculated the LCC for each scenario and evaluated the cost-saving potential of feasible U.S. clean energy policy incentives, including federal tax credits, low-interest loans, and accelerated depreciation. Finally, we used the Air Pollution Emission Experiments and Policy model to quantify air pollutant emissions social cost for formulating emission tax on DES and CCEP. Results show that the social cost of centralized conventional energy production is significantly higher than the distributed energy systems. The bundle of feasible U.S. clean energy policies can reduce the cost of distributed energy systems by 67% on average. Suppose the social cost of energy-related emissions is also considered and charged as emission tax for energy generation. In that case, 50% of building energy supply scenarios for the distributed energy systems become cost-competitive as compared to CCEP.