Electricity Investment and Feed-in-Tariff Policies under Electricity Generation Shortage

Electricity planning has shifted from traditional centralized models to approaches that better integrate distributed energy resources, aiming to improve sustainability, electricity access, and supply reliability. Among the different policy tools supporting this transition, Feed-in-tariff (FiT) schemes have been widely studied and applied to encourage renewable investments and promote consumer participation. While the existing literature on FiT design focuses on developed countries with stable grids, developing nations suffering from persistent electricity shortages face a very different reality. In nations such as Lebanon, Iraq, and Nigeria, unreliable supply, limited financial resources, and weak institutional capacity make it difficult to apply policies developed for advanced economies. Electricity decisions in these countries are often driven by crisis response, with renewable initiatives expanding independently from national planning strategies. This highlights the need for energy policies that incorporate the local context. Our research focuses on developing suitable FiT and electricity investment policies for countries suffering from generation shortages. To address it, we develop a two-stage game-theoretical model where the electric utility acts as the leader, minimizing total cost by deciding on generation capacity investments, (2) grid upgrades, and (3) FiT. The second stage consists of an equilibrium between four household categories that react to the utility’s decisions by either participating in the FiT program or not. We apply the model to the Lebanese case study and discuss how different types of households behave under various state investments and FiT levels, concluding with policy insights relevant to developing countries facing chronic electricity shortages.