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

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.

One crisis, different paths to supply resilience: The case of ventilator procurement for the COVID-19 pandemic

“… Some redundancy strategies contribute to flexibility and agility, e.g., using backup suppliers and building buffers for essential components, respectively. Sources : Lee (2004) ; Xie et al (2019) . Agility The ability of the supply chain to respond quickly to sudden and unexpected changes in demand and/or supply.…”

Renewable Energy Investment under Carbon Emission Regulations

“…Xie et al consider the responsive pricing problem for a grid operator in an environment where both supply and demand are uncertain. They evaluate the costs and benefits of flexible procurement and single procurement when generators are strategic price-makers [8]. Goodarzi et al study the data from the German energy market and investigate the impact of renewable energy (such as wind/solar) forecast errors on unbalanced energy and subsequent spot energy prices [9].…”