Notes on the Economics of Residential Hybrid Energy System

Despite advances in small-scale hybrid renewable energy technologies, there are limited economic frameworks that model the different decisions made by a residential hybrid system owner. We present a comprehensive review of studies that examine the techno-economic feasibility of small-scale hybrid energy systems, and we find that the most common approach is to compare the annualized life-time costs to the expected energy output and choose the system with the lowest cost per output. While practical, this type of benefit–cost analysis misses out on other production and consumption decisions that are simultaneously made when adopting a hybrid energy system. In this paper, we propose a broader and more robust theoretical framework—based on production and utility theory—to illustrate how the production of renewable energy from multiple sources affects energy efficiency, energy services, and energy consumption choices in the residential sector. Finally, we discuss how the model can be applied to guide a hybrid-prosumer’s decision-making in the US residential sector. Examining hybrid renewable energy systems within a solid economic framework makes the study of hybrid energy more accessible to economists, facilitating interdisciplinary collaborations.