Market Power and Distributed Solar Integration in Microgrids under Limited Regulation

[2603.16893] Market Power and Distributed Solar Integration in Microgrids under Limited Regulation Skip to main content Search Submit Donate Log in Electrical Engineering and Systems Science > Systems and Control arXiv:2603.16893 (eess) [Submitted on 2 Mar 2026 ( v1 ), last revised 24 Aug 2026 (this version, v3)] Title: Market Power and Distributed Solar Integration in Microgrids under Limited Regulation Authors: Elsa Bou Gebrael (1), Majd Olleik (1), Sebastian Zwickl-Bernhard (2) ((1) American University of Beirut, Maroun Semaan Faculty of Engineering and Architecture, Industrial Engineering and Management Department Beirut, Lebanon, (2) Vienna University of Technology, Institute of Energy Systems and Electrical Drives, Energy Economics Group (EEG), Austria, Norwegian University of Science and Technology, Norway) View PDF HTML (experimental) Abstract: Decentralized electricity systems increasingly emerge where centralized grids fail to provide reliable supply. In such settings, privately operated neighborhood microgrids, often based on diesel generators, exhibit significant market power, limited regulatory oversight, and high environmental externalities. In parallel, households increasingly deploy off-grid solar photovoltaic (PV) systems to gain control over electricity supply. However, these systems suffer from curtailed excess generation during peak solar hours and unreliable access at other times. While prior studies have optimized microgrids in low-reliability grid contexts from a techno-economic perspective, they largely neglect the market power exerted by monopolistic private generators. This paper addresses this gap by developing a bi-level game-theoretic model that enables household-generated electricity to be fed into the microgrid while explicitly accounting for the market power of a neighborhood diesel generator company (DGC). The regulator sets price and feed-in-tariff caps to maximize household economic surplus (HES), while the DGC acts as a profit-maximizing agent controlling access and supply. The model is illustrated using high-resolution empirical data from Lebanon. Results show that: (i) price and feed-in-tariff caps substantially increase HES and consistently induce significant household PV feed-in to the microgrid; (ii) higher DGC budgets or greater PV-owner penetration lead to pronounced gains in HES; and (iii) the renewable energy share reaches 60% under base conditions and approaches 100% at sufficiently high budgets or PV-owner penetration levels, compared to 0% under the status quo. Comments: Accepted for publication in Applied Energy Subjects: Systems and Control (eess.SY) ; General Economics (econ.GN) Cite as: arXiv:2603.16893 [eess.SY] (or arXiv:2603.16893v3 [eess.SY] for this version) https://doi.org/10.48550/arXiv.2603.16893 Focus to learn more arXiv-issued DOI via DataCite Related DOI : https://doi.org/10.1016/j.apenergy.2026.128703 Focus to learn more DOI(s) linking to related resources Submission history From: Elsa Bou Gebrael [ view email ] [v1] Mon, 2 Mar 2026 15:13:12 UTC (1,388 KB) [v2] Mon, 4 May 2026 16:18:35 UTC (1,388 KB) [v3] Mon, 24 Aug 2026 08:32:38 UTC (1,381 KB) Full-text links: Access Paper: View PDF HTML (experimental) TeX Source view license Current browse context: eess.SY < prev | next > new | recent | 2026-03 Change to browse by: cs cs.SY econ econ.GN eess q-fin q-fin.EC References & Citations NASA ADS Google Scholar Semantic Scholar export BibTeX citation Bookmark Bibliographic Tools Bibliographic and Citation Tools Bibliographic Explorer Toggle Bibliographic Explorer ( What is the Explorer? ) Connected Papers Toggle Connected Papers ( What is Connected Papers? ) Litmaps Toggle Litmaps ( What is Litmaps? ) scite.ai Toggle scite Smart Citations ( What are Smart Citations? ) Code, Data, Media Code, Data and Media Associated with this Article alphaXiv Toggle alphaXiv ( What is alphaXiv? ) Links to Code Toggle CatalyzeX Code Finder for Papers ( What is CatalyzeX? ) DagsHub Toggle DagsHub ( What is DagsHub? ) GotitPub Toggle Gotit.pub ( What is GotitPub? ) Huggingface Toggle Hugging Face ( What is Huggingface? ) ScienceCast Toggle ScienceCast ( What is ScienceCast? ) Demos Demos Replicate Toggle Replicate ( What is Replicate? ) Spaces Toggle Hugging Face Spaces ( What is Spaces? ) Spaces Toggle TXYZ.AI ( What is TXYZ.AI? ) Related Papers Recommenders and Search Tools Link to Influence Flower Influence Flower ( What are Influence Flowers? ) Core recommender toggle CORE Recommender ( What is CORE? ) Author Venue Institution Topic About arXivLabs arXivLabs: experimental projects with community collaborators arXivLabs is a framework that allows collaborators to develop and share new arXiv features directly on our website. 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