IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 18, NO.

4, NOVEMBER 2003

1275

Analysis of Energy Pricing in Urban Energy Service

Systems Considering a Multiobjective Problem of
Environmental and Economic Impact
Hirohisa Aki, Member, IEEE, Tsutomu Oyama, Member, IEEE, and Kiichiro Tsuji, Member, IEEE

Gas demand.
Cooling demand.
Heating demand.
Hot water demand.
Cooking demand.
EP total electricity supply.
EP total gas supply.
EP total cooling supply.
EP total heating supply.
EP electricity purchases from outside.
EP gas purchases from outside.
MGT generation.
MGT heat recovery.
MGT heat recovery for heating.
MGT heat recovery for water heating.
GE generation.
GE heat recovery.
Gas turbine generation.
Gas turbine heat recovery.
Heat pump cooling output.
Heat pump heating output.
Gas heater output.
Gas boiler output.
Gas stove output.
Absorption refrigerator output.
Electric turbo refrigerator output.
Steam turbo refrigerator output.
COP of heat pump (cooling operation).
COP of heat pump (heating operation).
Efficiency of MGT (generation).
Efficiency of MGT (heat recovery).
Efficiency of gas engine (generation).
Efficiency of gas engine (heat recovery).
Efficiency of gas turbine (generation).
Efficiency of gas turbine (heat recovery).
COP of absorption refrigerator.
COP of electric turbo refrigerator.
COP of steam turbo refrigerator.

AbstractIntroduction of an integrated energy service system

in an urban area is assumed. An energy supply plant is installed in
the area to provide integrated energy service. It supplies electricity,
gas, cooling, and heating to consumers.
To consider
2 emission constraint in the area, analyses of
energy pricing, economic impact on energy consumers, and operation of the system under the constraint of
2 emission were
performed.
2 emission and economic impact on the consumers and
the supplier of various energy pricing scenarios were calculated
using linear programming models. The solution that satisfied the
2 emission restriction, and was economically optimal to the
consumers was chosen from the results. The chosen solutions
are Pareto optimum solutions of a multiobjective problem that
concerns both
2 emission and cost to the consumers.

CO

CO

CO

CO

CO
TermsCO2

Index
mitigation, economic impact, energy
pricing, energy system, multiobjective problem.

NOMENCLATURE
Season (middle, summer, winter).
Hour.
Cost of equipment.
Cost of energy.
Depreciation cost of equipment.
Maintenance cost of equipment.
Capacity of equipment.
Base charge for energy.
Meter charge for energy.
Maximum energy supply from EP.
Annual energy supply from EP.
EP electricity supply.
EP gas supply.
EP cooling supply.
EP heating supply.
EP heating supply for space heating.
EP heating supply for water heating.
Electricity demand.

Manuscript received February 25, 2003.

H. Aki is with the Energy Network Group, Energy Electronics Institute,
National Institute of Advanced Industrial Science and Technology (AIST),
Tsukuba 305-8568, Japan.
T. Oyama is with the Department of Electrical and Computer Engineering,
Faculty of Engineering, Yokohama National University, Yokohama 240-8501,
Japan.
K. Tsuji is with the Department of Electrical Engineering, Graduate School
of Engineering, Osaka University, Osaka 565-0871, Japan.
Digital Object Identifier 10.1109/TPWRS.2003.818599

I. INTRODUCTION

LOBAL environmental issues such as the greenhouse

effect resulting from energy consumption are attracting
considerable attention. On the other hand, the movement

0885-8950/03$17.00 2003 IEEE

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IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 18, NO. 4, NOVEMBER 2003

toward deregulation is accelerating restructuring in the energy

business field.
In this paper, the introduction of an integrated energy service
system into an urban area of Japan is assumed. Introduction of
such alternative systems offers the possibility of mitigation of
emissions [1].
environmental impact including
An energy supply plant (EP) is assumed to be installed in the
central part of the area, and has the responsibility and obligation of energy supply in the area. It supplies electricity, gas,
cooling, and heating by operating a combined heat and power
(CHP) system. Energy consumers can combine energy supply
from the plant and their own energy equipment such as CHP, air
conditioners, etc.
Discussions on the influence of economic factors on the behavior of energy suppliers and consumers are essential to evaluate the effects of introduction of such energy service systems
[2][4]. Energy pricing is considered to be an economic factor
for evaluating the effects of introducing and operating an integrated energy service system.
In this paper, energy pricing is analyzed considering environmental impact and economic impact. Optimum energy pricing is
obtained as a Pareto solution by a multiobjective model considemissions and economic impact on consumers.
ering both
To analyze the relationships between energy pricing and evaluation indexes (environmental and economic impact), a model
for calculation including linear programming models was constructed. Applying these models, a multiobjective model for
emissions and cost to consumers was also
minimization of
constructed.

Fig. 1.

Energy service system.

TABLE I
SYSTEM CONFIGURATION

II. ENERGY SERVICE SYSTEM

A. Energy Service System of the Area
In conventional urban energy systems, consumers are supplied electricity and gas from electricity and gas utilities, respectively, and they operate their own energy equipment such
as heat pumps to satisfy their demand in Japan.
In this paper, introduction of the integrated energy service
system shown in Fig. 1 is assumed. An energy supply plant (EP)
is installed in the central part of the area and supplies electricity,
gas, cooling, and heating to consumers.
The consumers combine energy supply from the EP and energy equipment to satisfy their final energy demand.
The EP purchases electricity and gas from outside of the area,
and produces electricity, cooling, and heating for supply in the
area.
B. System Configuration
Energy equipment owned by the consumers and the EP is
shown in Table I. The abbreviations used for the equipment are
listed below the table.
Two types of system configurations (residential dwellings
and business facilities) are assumed as the consumers. The EP
supplies electricity, gas, cooling, and heating to them. Both the
consumers and the EP have distributed generations (DGs) used

in the CHP mode. So, many DGs (CHPs)1 are installed and
operated in the area.
Residential dwellings have microgas turbines (MGTs)
as CHPs. Generated electricity is consumed not only for
electricity demand such as lighting but also by electric heat
pumps. Reverse flow (selling of electricity) is permitted. An
electric heat pump supplies both cooling and heating. It is an
alternative to cooling and heating supply from the EP. Exhaust
heat is recovered and supplied to the absorption refrigerator for
cooling or consumed for heating demand and hot water.
Business facilities also have CHPs. Restaurants and shops
have MGTs as CHPs, and other facilities have gas engines
(GEs). These system configurations are typical in Japan.
Generated electricity is consumed for electricity demand and
electric turbo refrigerators. Recovered heat is consumed for
absorption refrigerators, heating demand, and water heating.
1Distributed generation (DG) is a generating plant serving a customer on-site
or providing support to a distribution network, connected to the grid at distribution-level voltages. It includes gas engines, micro-gas turbines, fuel cells, photovoltaic systems, etc. [5]. CHP is the simultaneous production and delivery of
electricity and heat [6].

AKI et al.: ANALYSIS OF ENERGY PRICING IN URBAN ENERGY SERVICE SYSTEMS

1277

Fig. 3.

Submodel for calculation.

(a)

(b)
Fig. 2. Main model for calculation. (a) Main model for calculation; (b)
Auxiliary drawing of main model.

The EP also has a CHP and generated electricity is supplied to

the consumers. Recovered heat is combined with the output of
the gas boilers and consumed for turbo refrigerators and heating
demand.
III. MODEL FOR CALCULATION
An energy system model including linear programming
models (Figs. 2 and 3) was constructed to describe assumed
energy service systems, and various types of analyses were
performed for energy pricing, environmental impact, and
economic impact on the consumers and the supplier. The model
consists of a main model (Fig. 2) and a submodel (Fig. 3).
A. Main Model
Fig. 2(a) describes flow to obtain a Pareto optimum solution.
Fig. 2(b) demonstrates auxiliary explanation.
Calculation flow of the main model to obtain a Pareto optimum solution is described below. Roman numerals correspond
to numbers in Fig. 2.
i) Various energy pricing scenarios are assumed and input
emission
, consumers cost
to the submodel.

, economic impact, etc. are calculated from the energy pricing and other input data by the submodel. A set
of calculation results is obtained by inputting various energy pricings to the submodel. The set is plotted as shown
in Fig. 2(b)-(i).
emission constraint
ii) Cases that fulfill the assumed
) are selected from the set of calculation
(i.e.,
results.
iii) Optimum cases are chosen from the sets as the final step.
The objective function in this study is minimization of
the consumers cost. Therefore, the case, having the minis chosen for each
imum value for consumers cost
constraint.
iv) ii) and iii) above are repeated as changing values for the
emission constraint
. As the result, sets that correspond to the constraint values are obtained as closed
circles in Fig. 2(b)-(iv). The line in Fig. 2(b)-(iv) shows
that Pareto optimality2 is achieved by this procedure.
B. Submodel
The submodel calculates the behavior of both the consumers
and the EP from the energy pricing and other input data. The
consumers and the EP are assumed to behave rationally depending only on their economic impact. Uncertainties such as
change in demands, pricing, and other factors in the future are
not considered in this paper.
The calculation in the submodel consists of two steps (the
consumers and the EP).
In the first step, energy prices and the consumers energy
demand are input to linear programming models for the consumers. The total energy demand that is supplied by the EP, total
capacity, and operational strategies of energy equipment owned
by the consumers, and annual disbursement of the consumers
are calculated.
The hourly and seasonal end-use energy demand of each facility is assumed as the daily load curve per floor area. Seasonal
variations are represented by three typical days (summer, winter,
and middle).
2The Pareto optimality is defined as a state, where it is impossible to improve
an objective function without making other objective functions worse off. [7].

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IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 18, NO. 4, NOVEMBER 2003

The energy pricing assumptions are described later

(Table IV).
The total energy demand of the area is calculated by multiplying and summing the calculation result for each facility and
its floor area. This gives the energy demand that the EP has to
supply.
At the second step, the total energy demand of the area is input
to the linear programming model for the EP. Energy purchases
(electricity and gas) from outside of the area, and profit and loss
of the EP are calculated by the model.
emission
By summarizing these calculation results, the
and economic indexes are obtained.
C. Linear Programming Models

TABLE II
CONFIGURATION OF ENERGY CONSUMERS IN MODEL AREA

TABLE III
EFFICIENCY (COP) AND ANNUAL COST OF EQUIPMENT

Linear programming models have been developed for residential dwellings, business facilities, and the EP.
Their objective function is minimization of annual cost. The
annual cost consists of energy cost and equipment cost, which is
in proportion to the capacity of the equipment. The constraints
consist of energy supply and demand, capacity of the equipment, and purchase of energy.
In general, not only cost minimization but also maximization
of profit can be considered to be the objective function of the EP.
The EP is assumed to be obligated to supply all of the energy
demand of the consumers. The income of the EP depends on the
consumers. Therefore, minimizing cost is the only measure to
increase profit for the EP.
Details of the models (equations) are attached as the
Appendix.
TABLE IV
ENERGY PRICES

IV. APPLICATION TO THE MODEL AREA

A. Description of the Area
A middle-sized urban area that includes two types of residential dwellings and five types of business facilities is assumed as
the model area. The configuration of the energy consumers is
shown in Table II.
Daily load curves of the end-use demand of each type of facility are also assumed [8], [9]. The load curves are various, depending on each consumer, and constantly change. However, it
is appropriate to apply an average curve as a representative for
analyses that involve a large number of consumers, as in this
study.
Consumer demand is characterized by future uncertainty. It
is related to economic conditions, climate conditions, and consumers lifestyles. A marked increase or decrease of demand is
not expected in either residential dwellings or business facilities
in Japan.
B. Energy Supply Equipment
Efficiencies (COP: coefficient of performance) and annual
costs of energy supply equipment are shown in Table III [10].
The costs consist of depreciation and periodic maintenance
costs. It is assumed that they depend on the capacity of the
equipment in this study.

C. Energy Pricing
Assumed energy prices are shown in Table IV. Each energy
price, except gas, consists of a base charge that is based on peak
demand through the year, and a meter charge that is in proportion to purchased energy.
The actual tariffs of an electricity utility [11] and a gas utility
[12] in Japan were referenced for the assumptions.
The reverse charge (selling price) is less than half the meter
charge (buying price) in Japan. However, the reverse charge for
the consumers is assumed to be the same as their buying price,

AKI et al.: ANALYSIS OF ENERGY PRICING IN URBAN ENERGY SERVICE SYSTEMS

because reverse flow of surplus electricity from the consumer to

the EP does not reduce energy over the whole area.
Electricity and gas utilities have recently begun to reduce
prices, reflecting deregulation of the energy market in Japan3
[5], [13]. The prices shown in Table IV may therefore change
in the future. However, the possibility that violent fluctuations
will occur is considered to be small.
The energy prices shown in Table IV are the standard prices.
Assumptions of the meter charges paid by consumers to the
EP are varied from 20% to 20% in increments of 5% (i.e.,
, standard price,
) to analyze
the effect on energy pricing.

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CO

TABLE V
EMISSION INTENSITY

TABLE VI
CONFIGURATION OF CONVENTIONAL SYSTEM

D. Price Elasticity
The influence of price elasticity is also considered in this
study.
In general, there are two types of price elasticity regarding the
relationship between goods and prices. These factors are often
used in macroeconomic models.
The macroeconomic type calculation is applied only to selfelasticity in this study, although calculations are performed basically by bottom-up models.
The cross-elasticity factor is not explicitly treated in this
study. However, optimization is performed by combining four
types of energy, which realizes application of the concept of
cross-elasticity.

TABLE VII
CALCULATION RESULTS FOR CONVENTIONAL SYSTEM

V. ANALYSIS AND EVALUATION

E.

Emission Intensity

emission is calculated by multiplying purchases of

emission intensity.
energy from outside of the area by each
Several parameters were considered for estimating the
emission intensity of electricity from outside. The intensity
depends on the generation mix (thermal, nuclear, hydro, etc.),
and the generation mix constantly changes. It is difficult to
is reduced when 1 kWh of electricity is
define how much
saved [14], [15]. The following three parameters were therefore
considered.
1) average intensity through a year;
2) intensity of thermal plants;
3) daytime intensity of thermal plants, and nighttime intensity of nuclear plants.
We calculated each of the above three cases. The result of
case 3) is described as a typical case in this paper. The values of
emission intensity used in this study are shown in Table V.

F. Indexes for Conventional System

Calculation was performed for the conventional system to
provide an evaluation standard as a reference.
The system configuration assumed is shown in Table VI. The
calculation results are shown in Table VII.
3For example, Tokyo Electric, which is the largest private electric utility in the
world, reduced their electric prices 5.1% for residential dwellings (not deregulated market) and about 1214% for large-scale buildings and hotels (deregulated market) at the beginning of fiscal year 2002, against penetration of onsite
generations. Refer to [13] for more details.

The calculation results are shown in Figs. 4 to 6. The horiemission allowance. The values indizontal axis shows the
cated are the deviations from the values of the conventional case.
As the values move toward the left on the horizontal axis, the
constraint becomes stricter (the
emission allowance
becomes smaller).
A. Optimum Energy Pricing
Optimum energy pricing is shown in Fig. 4. This is the Pareto
optimum solution of the multiobjective problem that considers
emission and consumers cost. The consumers cost is also
plotted with a solid line for reference.
The vertical axis shows the energy price (deviation from
the standard price: %) and consumers cost (deviation from the
values of the conventional case: %).
emission alFor example, in the case in which the
lowance is 0%, electricity is found at the 5% energy price
while gas and heat are found at 5% and 20%, respectively.
conOptimum energy pricing for the case in which the
straint is 0% is therefore the set of 5% for electricity, 5%
for gas, and 20% for heat.
These solutions are summarized in Table VIII. Generally, exconstraint.
pensive energy pricing is chosen for a strict
This creates an economic disadvantage for the consumer. The
constraint become stricter.
electricity price rises as the
The gas price also rises, but the trend is not so clear. The heat
(cooling and heating) price remains at a low level unless the
constraint becomes very strict. The effects of the prices of
emission and the consumers cost
electricity and heat on
are larger than those of the gas price.

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Fig. 4.

IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 18, NO. 4, NOVEMBER 2003

Optimum energy pricing.

Fig. 5. Economic evaluation.

B. Economic Evaluation
The economic indexes are shown in Fig. 5. The EPs profit
and social welfare are described as deviations from the case in
which the standard price is applied.
The consumers cost increases monotonously as the
constraint become stricter. The increase rate is approximately
(288 000 yen/t-C).4 This is much higher than
78 600 yen/temission cost currently being discussed in the context
the
permits or a carbon tax.
of
The difference between the consumers costs for loose and
constraints is about 20%. This means that the constrict
sumers have to accept 20% higher payment to mitigate
emission.
The other economic index for consumers is consumers surplus. The decrease of consumers surplus for a strict restriction
emission shows that the consumers final energy deof
restriction becomes
mand is reduced by elasticity as the
stricter. This is caused by expensive energy pricing to reduce
emission.
It can be seen that some degree of economic disadvantage to
emission.
consumers is unavoidable to mitigate
constraint becomes
The EPs profit also increases as the
constraint bestricter. Energy prices increase when the
4About

U.S.$ 2 200/t-C (1 US$ = 130 yen).

Fig. 6.

Other indexes. a) End-use demand; b) CO emission intensity.

TABLE VIII
TYPICAL PRICING STRATEGY

comes stricter, increasing the income of the EP. On the other

hand, the change in the EPs expenditures is negligible. As a
constraint becomes
result, the EPs profit increases as the
stricter.

AKI et al.: ANALYSIS OF ENERGY PRICING IN URBAN ENERGY SERVICE SYSTEMS

The EP has both an obligation and a monopoly with regard

to energy supply. Therefore, the EP has the nature of a public
organization. Considering this character of the EP, such an increase in profit should be returned to society, because the EP
gains the profit without efforts.
Social welfare may be considered an index for evaluating the
emischange of economic impact on society to mitigate
sion.5 It is calculated as the sum of the consumers surplus and
the EPs profit. As shown in Fig. 5, it remains at almost zero.
Only energy prices in the area are changed in this study. Therefore, cash flow in the subject area will change in the manner of
a zero-sum game.

1281

A. Residential Dwellings
The objective function is minimization of cost (1). The constraint consists of energy demand and supply (2)(9), capacity
of equipment (10), and purchased energy (11).
Heating supply from the EP is not applicable to absorption
refrigerators, because its temperature is not sufficiently high.
Absorption refrigerators use only recovered heat of MGT (8).
Minimize Cost

(1)
C. Other Indexes
emission are reducThe direct factors for mitigation of
tion of end-use demand [Fig. 6(a)] and improvement of
emission intensity [Fig. 6(b)].
emission constraint beBoth indexes decrease as the
comes stricter.
Compared with the case of loose constraint, end-use demand
emission intensity is reduced by
is reduced by 9.6% and
constraint is very strict.
5.1% when the
mitigation, the reduction of
emisAs a measure for
sion intensity is more acceptable than the reduction of end-use
demand, because it involves no economic disadvantage to the
consumers. However, no economic disadvantage means no incentive. Consumers will therefore unavoidably suffer some economic disadvantage.

Subject to

(2)

(3)

(4)
(5)

VI. CONCLUSION
In this paper, introduction of an integrated energy service
system into an urban area is assumed.
Pareto optimum solutions for a multiobjective model that has
emission and consumers cost, are
two objective functions,
obtained.
The conclusions reached from the analysis are as follows.
emission and economic impact greatly depend on
1)
energy pricing. Therefore, not only the system configuration but also energy pricing should be considered when
introducing alternative energy service systems.
constraint
2) The cost to consumers increases as the
becomes strict. An appropriate strategy mix for mitigation
emission is necessary so as to avoid excessive
of
economic disadvantage to the consumers. The economic
disadvantage should be shared by all related individuals
and organizations.
3) The increase in the EPs profit in the case of strict
constraint should be returned to society without spoiling
emission.
the incentives to mitigate
APPENDIX

(6)
(7)

(8)

Capacity of Equip.

Output of Equip.(s,t)

(9)
(10)

Max. of EP Supply

EP Supply(s,t)

(11)

B. Business Facilities
The objective function of business facilities is also cost minimization, as in the case of residential dwellings. Constraints
(2)(9) are displaced by (12)(16). Equation (17) is applied, because absorption refrigerators use only recovered heat or boiler
output as in (8).

(12)

The mathematical formulations of the LP models used in this

study are as follows.
(13)
5As

analyses were performed from the perspective of energy, utility and cash
flow, external costs were not taken into consideration in this paper. So, the benefit gained by mitigating CO is not taken into account.

(14)

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IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 18, NO. 4, NOVEMBER 2003

(15)
(16)
(17)

C. EP
The objective function of the EP is also cost minimization.
Constraints (2)(9) or (12)(16) are displaced by (18)(21).

[8] K. Tsuji, M. Mizuno, O. Saeki, S. Sano, and T. Ueno, Reports on the

Monitoring of End-Use Demand for Residential Houses in the Kansai
Science City (vol. 1), (in Japanese), , Mar. 2001.
[9] Natural Gas Co-generation Planning and Designing Manual 2000 (in
Japanese): Japan Industrial Publishing, 2000.
[10] Price Data for Construction Cost Estimating (in Japanese): Economic
Research Association, Dec. 1999.
[11] Tariff of the Kansai Electric Power Co. Inc.http://www.kepco.co.jp/ [Online]
[12] Tariff of Osaka Gas Co., Ltd.http://www.osakagas.co.jp/gasrate/menu/menu.htm [Online]
[13] Energy Forum vol. 5 2002 (in Japanese), 2002.
[14] T. Ojima and T. Tanaka, Age of DSM (in Japanese), Japan: Waseda Univ.
Press, 1999, pp. 157158.
[15] T. Kashiwagi, Micro Power Revolution (in Japanese): TBS Britannica,
2001, pp. 193195.

(18)

(19)

(20)

(21)

REFERENCES
[1] K. Tsuji, M. Mizuno, E. Sugihara, K. Ito, R. Yokoyama, and T. Oyama,
Final Reports on Integrated Energy Service System, (in Japanese), ,
Mar. 2002.
[2] H. Aki, T. Oyama, and K. Tsuji, Analysis on mitigation of environmental impact and its economic impact in the integrated energy supply
systems, in Proc. Int. Conf. Elect. Eng., July 2001, pp. 703707.
, Analysis on mitigation effect of co emission by introduction of
[3]
alternative energy supply systems in urban area, in Proc. CIGRE Symp.,
Brasilia, Brazil, May 2002.
[4]
, Analysis on energy pricing, Co emission and economic impact
on integrated energy supply systems in urban area (in Japanese), in
Proc. 12th Annu. Conf. Power and Energy Soc., Inst. Elect. Eng. Jpn.,
Aug. 2001.
[5] Distributed Generation in Liberalised Electricity Markets: IEA, 2002.
[6] Technology and Environmental Aspects of Advanced Co-Generation:
WEC, 1995, p. 2.
[7] H. Nakayama and T. Taniya, Theory and Application of Multi-Objective
Programming (in Japanese): Corona, 1994.

Hirohisa Aki (S00M02) received the B.S. and

M.S. degrees in electrical engineering from Osaka
University, Japan, in 1994 and 1996, respectively,
and the Ph.D. degree in electrical and computer
engineering from Yokohama National University,
Japan, in 2002.
Currently, he is with the National Institute of
Advanced Industrial Science and Technology
(AIST), Tskuba, Japan, in 2002. He was a Plant
Engineer in electrical and instrumental design at
Mitsubishi Heavy Industries Co., Ltd., Yokohama,
Japan, from 1996 to 2001. His research interests include the analysis of urban
energy systems and mitigation of environment impact.

Tsutomu Oyama (S78M84) received the B.S.,

M.S., and Dr. Eng. degrees in electrical engineering
from the University of Tokyo, Tokyo, Japan, in 1978,
1980, and 1983, respectively.
Currently, he is a Professor at Yokohama National
University, Japan, 1998.
Dr. Oyama is a member of CIGRE and the IEE of
Japan.

Kiichiro Tsuji (M73) is a Professor of electrical engineering at Osaka University, Japan. He received the
Ph.D. degree in systems engineering from the Graduate School of Engineering, Case Western Reserve
University, Cleveland, OH, in 1973.
His research interests include analysis, planning,
and evaluation of urban energy systems, and control
and analysis of electrical power systems.