A Responsive Pricing Grid Operator Sourcing from Competing Generators under Uncertain Supply and Demand

Jiaping Xie, Lihong Wei, Weisi Zhang, Yu Xia and Jing Li
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Jiaping Xie: College of Business, Shanghai University of Finance and Economics, Shanghai 200433, China
Lihong Wei: College of Business, Shanghai University of Finance and Economics, Shanghai 200433, China
Weisi Zhang: Institute of Logistics Science and Engineering, Shanghai Maritime University, Shanghai 201306, China
Yu Xia: College of Business, Shanghai University of Finance and Economics, Shanghai 200433, China
Jing Li: College of Business, Shanghai University of Finance and Economics, Shanghai 200433, China

Sustainability, 2019, vol. 11, issue 15, 1-30

Abstract: Electricity supply chains involve more sources of uncertainty than typical production and manufacturing supply chains, owing to the intermittent nature of renewable energy generation. Therefore, it is critical but challenging to mitigate supply disruption risks by improving management methods. The extant literature has mainly investigated the sourcing strategies of manufacturers with price-taking suppliers. Where there is an option to source from multiple generators, including regular but unreliable generators and reliable backup generators, a flexible sourcing strategy is usually regarded as the best tactic for the grid operator. Our objective is to evaluate the costs and benefits of flexible sourcing and sole sourcing when generators are strategic price-setters. In this paper, we develop a Stackelberg game with wholesale prices contingent on the dominant grid operator’s sourcing strategy. We describe and analyze the resulting equilibriums under different scenarios. The results show that the grid operator does not necessarily benefit from a backup generator and that the flexible sourcing mode is not in fact optimal, except when the disruption ratio of the unreliable generator is medium and the penalty-sharing ratio of the unreliable generator is low. The model is applied to a numerical case study of a real-word electricity supply chain to illustrate the validity and effectiveness of the proposed conclusions.

Keywords: price competition; game theory; uncertainties; renewable energy; flexibility sourcing strategy (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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