A simulation-based optimization model to determine optimal electricity prices under various scenarios considering stakeholders' objectives

Electricity subsidy is allocated by many governments to help access electricity, support domestic industries and achieve social objectives. However, by distorting price signals, problems such as over consumption, low efficiency and investment shortage are attributed to this policy. Thus, many countries want to reduce or remove subsidies. A simulation-based optimization model using system dynamics approach is presented to determine optimal prices for electricity demand sectors and power plants' fuels under demand scenarios considering objectives of Iran's power sector stakeholders, namely government, electricity consumers and electricity producers. The model uses the prices of energy carriers determined based on economic, social and environmental criteria to simulate their impact on supply and demand of electricity, environmental emissions, water consumption and allocated subsidies. Simulation results indicate the household sector should have considerable higher prices in all scenarios. Moreover, with 57% decline in allotted funds, a complete removal of subsidies occurs in case 4. It is shown electricity export reaches 11% of total consumption. Also, CO2 emission and water use respectively decreases by 17.2% and 18.1%. The electricity supply reaches 61% more than the current value and average efficiency of thermal plants reaches 58.31% by 2040, compared respectively with -12% and 42.7%, in case 1. (C) 2021 Elsevier Ltd. All rights reserved.