A Quasi-Feed-In-Tariff policy formulation in micro-grids: A bi-level multi-period approach Ahmad F. Taha a , Nadim A. Hachem b , Jitesh H. Panchal c,n a School of Electrical and Computer Engineering, Purdue University, West Lafayette, IN 47906, USA b Department of Electrical and Computer Engineering, American University of Beirut, Beirut, Lebanon c School of Mechanical Engineering, Purdue University, West Lafayette, IN 47906, USA HIGHLIGHTS  We present a bi-level optimization problem formulation for Quasi-Feed-In-Tariff (QFIT) policy.  QFIT dictates that subsidy prices dynamically vary over time depending on conditions.  Power grid's physical characteristics affect optimal subsidy prices and energy generation.  To maximize welfare, policy makers ought to increase subsidy prices during the peak-load. article info Article history: Received 25 November 2013 Received in revised form 8 April 2014 Accepted 10 April 2014 Keywords: Quasi Feed-In-Tariff Micro-grids Bi-level optimization Subsidy prices abstract A Quasi-Feed-In-Tariff (QFIT) policy formulation is presented for micro-grids that integrates renewable energy generation considering Policy Makers' and Generation Companies' (GENCOs) objectives assuming a bi-level multi-period formulation that integrates physical characteristics of the power-grid. The upper- level problem corresponds to the PM, whereas the lower-level decisions are made by GENCOs. We consider that some GENCOs are green energy producers, while others are black energy producers. Policy makers incentivize green energy producers to generate energy through the payment of optimal time- varying subsidy price. The policy maker's main objective is to maximize an overall social welfare that includes factors such as demand surplus, energy cost, renewable energy subsidy price, and environ- mental standards. The lower-level problem corresponding to the GENCOs is based on maximizing the players' profits. The proposed QFIT policy differs from the FIT policy in the sense that the subsidy price- based contracts offered to green energy producers dynamically change over time, depending on the physical properties of the grid, demand, and energy price fluctuations. The integrated problem solves for time-varying subsidy price and equilibrium energy quantities that optimize the system welfare under different grid and system conditions. & 2014 Elsevier Ltd. All rights reserved. 1. Introduction The objective in the paper is to develop a bi-level multi-period decision making formulation in micro-grids for energy markets that integrates renewable energy generation considering different Policy Makers'(PM) and Generation Companies'(GENCOs) objec- tives, while taking into consideration the effect of power line characteristics and the physical constraints in the system. The policy maker (or in some cases, the independent system operator) represents the governing and monitoring body of the grid, that is concerned with the welfare of the power grid, rather than the profitability. In the bi-level problem, the upper-level problem corresponds to the PMs, whereas the lower-level decisions are made by competing market players or GENCOs. The goal of the PM is to maximize an overall social welfare (OSW) measure which depends on overall system reliability, price stability, supply sur- plus, percentage of renewable energy generation, and other factors. On the other hand, GENCOs are profit maximizing entities. GENCOs' plants are subject to physical constraints in terms of line loading capabilities, Power Transfer Distribution Factors (PTDFs), as well as profitability considerations. We study the short-term (hourly, daily) planning and the interaction between the PM and GENCOs in a micro-grid, as well as the effect of different line Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy http://dx.doi.org/10.1016/j.enpol.2014.04.014 0301-4215/& 2014 Elsevier Ltd. All rights reserved. n Corresponding author. E-mail addresses: tahaa@purdue.edu (A.F. Taha), nah40@aub.edu.lb (N.A. Hachem), panchal@purdue.edu (J.H. Panchal). Please cite this article as: Taha, A.F., et al., A Quasi-Feed-In-Tariff policy formulation in micro-grids: A bi-level multi-period approach. Energy Policy (2014), http://dx.doi.org/10.1016/j.enpol.2014.04.014i Energy Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎