Contract coordination optimization of a multi-power supplier-single dominant grid supply chain in hybrid electricity market

Date21 October 2019
Published date21 October 2019
DOIhttps://doi.org/10.1108/IMDS-08-2018-0340
Pages1861-1887
AuthorZhenning Zhu,Lingcheng Kong,Jiaping Xie,Jing Li,Bing Cao
Subject MatterInformation & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems
Contract coordination
optimization of a multi-power
supplier-single dominant grid
supply chain in hybrid
electricity market
Zhenning Zhu
Business School,
East China University of Science and Technology, Shanghai, China and
School of Economics, Zhejiang University of Technology, Hangzhou, China
Lingcheng Kong
Business School,
East China University of Science and Technology, Shanghai, China
Jiaping Xie and Jing Li
College of Business, Shanghai University of Finance and Economics,
Shanghai, China, and
Bing Cao
Business School, Guilin University of Electronic Technology, Guilin, China
Abstract
Purpose In the hybrid electricity market, renewable energy power generator faces the uncertainty of power
market demand and the randomness of the renewable energy generation output. In order to improve the
grid-connected quantity of green power, the purpose of this paper is to design the pricing mechanism for
renewable energy power generator with revenue-sharing contract in a two-stage multi-singleelectricity
supply chain which contains a single dominant power retailer and two kinds of power suppliers providing
different power energy species.
Design/methodology/approach Considering the dual uncertainties of renewable energy power output
and power market demand, the authors design the full-cooperative contract decision-making model,
wholesale price contract decision-making model and revenue-sharing contract decision-making model to
compare and optimize grid-connected pricing in order to maximize profit of different parties in power supply
chain. Then, this paper performs a numerical simulation, discusses the existence of the equilibrium analytical
solutions to satisfy the supply chain coordination conditions and analyzes the optimal contract parameters
variation characteristics and their interaction relationship.
Findings The authors find that the expected profits of the parties in the hybrid power supply chain are
concave abouttheir decision variables ineach decision-making mode. Therevenue-sharing contractcan realize
the Pareto improvement for all partiesinterestof the supply chain, andpromote the grid-connected quantityof
greenpower effectively. The grid-connectedprice will reducewith the increase of revenue-sharing ratio,and this
impact will be greateron the renewable energy power. The greater thecompetition intensity in power supply
side, the smallerthe revenue-sharing ratiofrom power purchaser. And forthe same rangeability of competition
intensity, the revenue-sharing ratioreduction of thermal power is less than that of the greenpower. The more
the government subsidizing green power supplier, the smaller the retailersharing revenue to it.
Practical implications Facing withthe dual uncertainties of greenpower output and market demandand
the competitionof thermal power in hybridelectricity market, thisstudy can provide a path to solve the problem
of renewable energy power grid-connecting. The results can help green power become competitive in hybrid
power market underloose regulations. And this paper suggests that the governmentsubsidy policy should be
more tactical in orderto implement a revenue-sharing contract of thepower supply chain. Industrial Management & Data
Systems
Vol. 119 No. 9, 2019
pp. 1861-1887
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-08-2018-0340
Received 6 August 2018
Revised 21 November 2018
2 January 2019
Accepted 10 January 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
The work was supported by National Social Science Found of China (Grant No. 15ZDB16 1) and Humanities
and Social Sciences Planning Fund of Ministry of Education of China (Grant No. 18YJA790042).
1861
Contract
coordination
optimization
Originality/value This paper studies the renewable energy electricity grid-connected pricing under the
uncertainty of power supply and market demand, and compares different contract decision-making strategies
in order to achieve the power supply chain coordination. The paper also analyzes the competition between
thermal power and renewable energy power in hybrid electricity market.
Keywords Supply chain coordination, Competition, Hybrid electricity market, Intermittency,
Uncertain supply and demand
Paper type Research paper
Highlights:
(1) Green power grid-connected pricing under the dual uncertainties of power supply
and market demand.
(2) Competition between thermal power and renewable energy power.
(3) Different contracts for coordinating the power supply chain.
(4) A two-stage multi-singleelectricity supply chain.
1. Introduction
The development and utilization of renewable energy cannot only eliminate environmental
degradation air pollution and carbon emission caused by employing conventional fossil
energy, but also play an important role in alleviating the contradiction between global
energy supply and demand effectively. With the rapid growing of renewable energy, China
has become one of the protagonists in the worldwide development and utilization of
renewable energy power. According to Power Industry Annual Development Report in
2018conducted by Chinese Electricity Council, by the end of 2017, the renewable energy
installed capacity in China has already exceeded 290m kilowatts, raising its proportion to
16.5 percent of total installed capacity. In 2017, there had been a sharp increase in the
renewable energy (such as wind and solar) power generation, making it reach to 6.5 percent
of total power generation, 420bn KWH, and 748.5 percent higher than 2010. Nevertheless,
renewable energy output is more unstable compared with the conventional energy and its
power transmission needs high-peak shaving costs. In addition, the generation marginal
cost of renewable power is lower than the fossil source electricity, but the fixed cost is much
higher (Henriot, 2015), making the electricity price of renewable energy higher than
conventional energy power in practice (Xie et al., 2018). Up to now, the power grid enterprise
monopolizes the Chinese electricity market and is not willing to use renewable energy power
because of its intermittence and high grid-connected cost, which hinders the utilization and
development of renewable energy. Unfortunately, there is still a high rate of abandonment
of wind and solarin some areas in China. According to the data of Chinese Electricity
Council, the total abandonment amount of wind power was 41.9bn KWH and the
abandonment rate reached to 12 percent in 2017.
Thereby, in order to solve renewable energypower grid-connected problem, governments
in many countries including China had implemented policies such as subsidy and feed-in
tariff (FIT) (Valentine,2010), limiting the electricityprice of renewable energylower than fossil
energy (Xie et al., 2018). However, the fixedprice policies, on the one hand, lackincentives for
power generators to pursue renewable energy when the fixed price is low (Kong et al., 2018),
and on the other hand, bring a heavy financial burden to the government when the price is
high (Liu et al., 2016). In practice, the upper bound of green powers grid-connected amount
is continuously broken in the Nordic region and Qinghai Province of China. These
breakthroughsmainly depend on whether they can achievethe interest coordination of power
supply chain. In order to build an effective competitive power market structure and form a
1862
IMDS
119,9

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