Contract Selection Decision of Hybrid Energy Power Supply Chain Under Cap-and-Trade: Perspective of Supply Disruption Risk

Abstract

The intermittency of new energy power generation (NEPG) exposes the power supply chain (PSC) to a higher supply disruption risk (SDR), so it is crucial to determine how to manage such risk and minimize losses. In the context of cap-and-trade (CAT) in the power industry, we construct a two-stage decentralized PSC considering the SDR, which is composed of a hybrid energy generator and a power retailer. By establishing a Stackelberg game model under a power option contract (POC) and a power purchase commitment contract (PPCC), we obtain the optimal equilibrium decisions and the corresponding optimal expected profits under the two contracts to further explore the optimal contract selection decision of the power retailer based on the SDR when the CAT regulations change. We find the following. (1) When the SDR is below a certain threshold, the power retailer always prefers the PPCC. When the SDR exceeds this threshold, the contract selection decision varies depending on the changes in the CAT regulations. (2) In general, a decrease in carbon allowances and an increase in option fees will make the power retailer prefer the PPCC, but when the option fees exceed a certain threshold and the carbon allowances are less than a certain threshold at the same time, the increase in option fees will instead make the power retailer prefer the POC when the SDR is higher. Our results have implications for power firms and governments.

Keywords: Power supply chain; Supply disruption risk; Contract selection; Hybrid energy generation; Cap-and-trade.

JEL Classification: L14 L94 M11 Q42 Q58