# American Institute of Mathematical Sciences

doi: 10.3934/jimo.2022006
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## Investment strategy for renewable energy and electricity service quality under different power structures

 1 College of Management Science, Chengdu University of Technology, Chengdu 610059, China 2 School of Marketing and Logistics Management, Nanjing University of Finance and Economics, Nanjing 210023, China 3 School of Economics, Southwest Minzhu University, Chengdu 610041, China 4 School of Computer Science, Southwest Petroleum University, Chengdu 610500, China

*Corresponding author: Hongyan Du

Received  July 2021 Revised  October 2021 Early access February 2022

This paper investigates and develops an electricity supply chain with an electricity generator and electricity retailer. The electricity generator invests in renewable energy and sells the electricity to the electricity retailer; the retailer then sells the electricity to consumers according to electricity service quality. Three models are considered: the vertical Nash game, the electricity-generator Stackelberg model, and the electricity-retailer Stackelberg model. Finally, the optimal solutions under different power-structure models are compared. Certain conclusions can be drawn from the findings: (1) the highest electricity service quality and renewable energy investment are obtained in the vertical Nash game model, the electricity generator obtains more profits in the electricity-generator Stackelberg model, and the electricity retailer obtains more profits in the electricity-retailer Stackelberg model. (2) The investment in renewable energy in the electricity-generator Stackelberg model is less than that in the electricity-retailer Stackelberg model, and the investment in electricity service quality in the electricity-retailer Stackelberg model is less than that in the electricity-generator Stackelberg model (under certain conditions). (3) Both increasing the electricity service quality sensitivity and renewable energy sensitivity could increase the optimal electricity price, electricity demand, electricity service quality, renewable energy investment, and supply-chain enterprises' profit.

Citation: Wei Chen, Jianchang Fan, Hongyan Du, Pingsi Zhong. Investment strategy for renewable energy and electricity service quality under different power structures. Journal of Industrial and Management Optimization, doi: 10.3934/jimo.2022006
##### References:
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Xia, Is there any difference in the impact of economic policy uncertainty on the investment of traditional and renewable energy enterprises?, Journal of Cleaner Production, A Comparative Study Based on Regulatory Effects, 225 (2020), 1–12. [16] Z. Liu, T. Anderson and J. M. Cruz, Consumer environmental awareness and competition in two-stage supply chains, European J. Oper. Res., 218 (2012), 602-613.  doi: 10.1016/j.ejor.2011.11.027. [17] A. Mardani, D. Kannan, R. E. Hooker, C. Ozkul, M. Alrasheedi and E. B. Tirkolaee, Evaluation of green and sustainable supply chain management using structural equation modelling: A systematic review of the state of the art literature and recommendations for future research, Journal of Cleaner Production, 249 (2020), 119383. [18] Nanjing daily. The total investment is 3.2 billion! Commencement of Huajun power's annual output of 10GW photovoltaic module project. https://power.in-en.com/html/power-2355067.shtml. Accessed March 09, 2020. [19] R. Till, Green tradable certificates versus feed-in tariffs in the promotion of renewable energy shares, Environmental Economics and Policy Studies, 17 (2015), 211-239. [20] P. D. Río and M. A. Gual, An integrated assessment of the feed-in tariff system in Spain, Energy Policy, 35 (2007), 994-1012. [21] Z. Shi, Optimal remanufacturing and acquisition decisions in warranty service considering part obsolescence, Computers & Industrial Engineering, 135 (2019), 766-779. [22] J. J. Soon and S. A. Ahmad, Willingly or grudgingly? A meta-analysis on the willingness-to-pay for renewable energy use, Renewable and Sustainable Energy Reviews, 44 (2015), 877-887. [23] O. Tahvonen and S. Salo, Economic growth and transitions between renewable and nonrenewable energy resources, European Economic Review, 45 (2001), 1379-1398. [24] E. B. Tirkolaee, A. Mardani and Z. Dashtian, A novel hybrid method using fuzzy decision making and multi-objective programming for sustainable-reliable supplier selection in two-echelon supply chain design, Journal of Cleaner Production, 250 (2020), 119517. [25] T. Xu and J. Ma, Feed-in tariff or tax-rebate regulation? Dynamic decision model for the solar photovoltaic supply chain, Appl. Math. Model., 89 (2021), 1106-1123.  doi: 10.1016/j.apm.2020.08.007. [26] D. Yang and T. Xiao, Coordination of a supply chain with loss-averse consumers in service quality, International Journal of Production Research, 55 (2017), 3411-3430. [27] Y. Yang, 90% of respondents in China are willing to pay high prices for renewable energy and green power, http://www.chinasmartgrid.com.cn/news/20160831/618419.shtml. Accessed September 19 2020. [28] Y. Zhou, J. Guo and W. Zhou, Pricing/service strategies for a dual-channel supply chain with free riding and service-cost sharing, International Journal of Production Economics, (2018), 198–210. [29] S. Zhou and B. D. Solomon, Do renewable portfolio standards in the United States stunt renewable electricity development beyond mandatory targets?, Energy Policy, 140 (2020), 111377.

show all references

##### References:
 [1] S. Aflaki and S. Netessine, Strategic investment in renewable energy sources: The effect of supply intermittency, Manufacturing & Service Operations Management, 19 (2017), 489-507. [2] V. Babich, R. Lobel and Ş. Yücel, Promoting Solar Panel Investments: Feed-in-Tariff vs. Tax-Rebate Policies, Manufacturing & Service Operations Management, 22 (2020), 1148-1164. [3] S. Borenstein, Effective and equitable adoption of opt-in residential dynamic electricity pricing, Review of Industrial Organization, 42 (2013), 127-160. [4] W. Chen, J. Chen and Y. Ma, Renewable energy investment and carbon emissions under cap-and-trade mechanisms, Journal of Cleaner Production, (2020). [5] G. Choi, S. Huh, E. Heo and C. Lee, Prices versus quantities: Comparing economic efficiency of feed-in tariff and renewable portfolio standard in promoting renewable electricity generation, Energy Policy, (2018), 239–248. [6] B. Dan, G. Xu and C. Liu, Pricing policies in a dual-channel supply chain with retail services, International Journal of Production Economics, 139 (2012), 312-320. [7] B. Dan, S. Zhang and M. Zhou, Strategies for warranty service in a dual-channel supply chain with value-added service competition, International Journal of Production Research, 56 (2018), 5677-5699. [8] E. S. Data, Cost of various power generation technologies: What is the current situation in 2020 and the trend in 2050?, https://guangfu.bjx.com.cn/news/20200609/1079528.shtml. Accessed June 09, 2020. [9] N. R. Darghouth, G. Barbose and R. Wiser, The impact of rate design and net metering on the bill savings from distributed PV for residential customers in California, Energy Policy, 39 (2011), 5243-5253. [10] Economic Daily (ED), High quality power supply is achieved in this way. http://www.csg.cn/xwzx/2018/gsyw/201806/t20180625_168606.html. Accessed July 25, 2018. [11] A. Goli, E. B. Tirkolaee and G. W. Weber, A perishable product sustainable supply chain network design problem with lead time and customer satisfaction using a hybrid whale-genetic algorithm//Logistics operations and management for recycling and reuse, Springer, Berlin, Heidelberg, (2020), 99–124. [12] A. G. Kök, K. Shang and Ş. Yücel, Impact of electricity pricing policies on renewable energy investments and carbon emissions, Management Science, 64 (2016), 131-148. [13] A. G. Kök, K. H. Shang and Ş. Yücel, Investments in renewable and conventional energy: The role of operational flexibility, Manufacturing & Service Operations Management, (2020). [14] Q. Li and B. Li, Dual-channel supply chain equilibrium problems regarding retail services and fairness concerns, Appl. Math. Model., 40 (2016), 7349-7367.  doi: 10.1016/j.apm.2016.03.010. [15] R. Liu, L. He, X. Liang, X. Yang and Y. Xia, Is there any difference in the impact of economic policy uncertainty on the investment of traditional and renewable energy enterprises?, Journal of Cleaner Production, A Comparative Study Based on Regulatory Effects, 225 (2020), 1–12. [16] Z. Liu, T. Anderson and J. M. Cruz, Consumer environmental awareness and competition in two-stage supply chains, European J. Oper. Res., 218 (2012), 602-613.  doi: 10.1016/j.ejor.2011.11.027. [17] A. Mardani, D. Kannan, R. E. Hooker, C. Ozkul, M. Alrasheedi and E. B. Tirkolaee, Evaluation of green and sustainable supply chain management using structural equation modelling: A systematic review of the state of the art literature and recommendations for future research, Journal of Cleaner Production, 249 (2020), 119383. [18] Nanjing daily. The total investment is 3.2 billion! Commencement of Huajun power's annual output of 10GW photovoltaic module project. https://power.in-en.com/html/power-2355067.shtml. Accessed March 09, 2020. [19] R. Till, Green tradable certificates versus feed-in tariffs in the promotion of renewable energy shares, Environmental Economics and Policy Studies, 17 (2015), 211-239. [20] P. D. Río and M. A. Gual, An integrated assessment of the feed-in tariff system in Spain, Energy Policy, 35 (2007), 994-1012. [21] Z. Shi, Optimal remanufacturing and acquisition decisions in warranty service considering part obsolescence, Computers & Industrial Engineering, 135 (2019), 766-779. [22] J. J. Soon and S. A. Ahmad, Willingly or grudgingly? A meta-analysis on the willingness-to-pay for renewable energy use, Renewable and Sustainable Energy Reviews, 44 (2015), 877-887. [23] O. Tahvonen and S. Salo, Economic growth and transitions between renewable and nonrenewable energy resources, European Economic Review, 45 (2001), 1379-1398. [24] E. B. Tirkolaee, A. Mardani and Z. Dashtian, A novel hybrid method using fuzzy decision making and multi-objective programming for sustainable-reliable supplier selection in two-echelon supply chain design, Journal of Cleaner Production, 250 (2020), 119517. [25] T. Xu and J. Ma, Feed-in tariff or tax-rebate regulation? Dynamic decision model for the solar photovoltaic supply chain, Appl. Math. Model., 89 (2021), 1106-1123.  doi: 10.1016/j.apm.2020.08.007. [26] D. Yang and T. Xiao, Coordination of a supply chain with loss-averse consumers in service quality, International Journal of Production Research, 55 (2017), 3411-3430. [27] Y. Yang, 90% of respondents in China are willing to pay high prices for renewable energy and green power, http://www.chinasmartgrid.com.cn/news/20160831/618419.shtml. Accessed September 19 2020. [28] Y. Zhou, J. Guo and W. Zhou, Pricing/service strategies for a dual-channel supply chain with free riding and service-cost sharing, International Journal of Production Economics, (2018), 198–210. [29] S. Zhou and B. D. Solomon, Do renewable portfolio standards in the United States stunt renewable electricity development beyond mandatory targets?, Energy Policy, 140 (2020), 111377.
Profit $\pi_{m/r}^{n*}$ as $e$
Profit $\pi_{m/r}^{n*}$ as $c$
Profit $\pi_{m/r}^{n*}$ as $d$
Notation
 Notation Description $q$ Electricity demand $a$ Potential market electricity demand $b$ Sensitivity of electricity price $c$ Sensitivity of electricity service quality $d$ Sensitivity of renewable energy investment $e$ Investment cost coefficient of electricity service quality $g$ Investment cost coefficient of renewable energy $t$ Unit cost of traditional energy $\pi_{r}$ Profit of the electricity retailer $\pi_{m}$ Profit of the electricity generator Decision Variables $w$ Wholesale electricity price $p$ Electricity price $h$ Renewable energy investment $k$ Electricity service quality
 Notation Description $q$ Electricity demand $a$ Potential market electricity demand $b$ Sensitivity of electricity price $c$ Sensitivity of electricity service quality $d$ Sensitivity of renewable energy investment $e$ Investment cost coefficient of electricity service quality $g$ Investment cost coefficient of renewable energy $t$ Unit cost of traditional energy $\pi_{r}$ Profit of the electricity retailer $\pi_{m}$ Profit of the electricity generator Decision Variables $w$ Wholesale electricity price $p$ Electricity price $h$ Renewable energy investment $k$ Electricity service quality
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