Optimizing capacity investment on renewable energy source supply chain

In China, power producers sell renewable energy to consumers through the power market, and have formed a multi-echelon renewable energy source power supply chain (RESPSC). This paper studies decisions on capacity investment for power producers facing a location problem in this dual-echelon RESPSC. We assume that demand and supply are uncertain, while the grid-connected power price is fixed. The problem can be modeled as a Stackelberg game from the perspective of RESPSC. We also analyze the impact of intermittence on profit distribution and risk sharing. From a comparison between centralized vs decentralized capacity investment decisions, we find that site candidates with higher market value should be given priority to invest under centralized decisions, while candidates with lower equivalent cost should be invested in first under conditions of a decentralized decision. The results suggest that RESPSC can be coordinated only if the profit share of the producer is zero, since the revenue share of the vendor decreases as investment increases. Meanwhile, because the intermittent supply of renewable energy affects the cost incurred by producers and the price given by vendors, respectively, power producers and vendors will evaluate the sites in different ways to maximize their own benefits. If disagreements regarding site quality arise between producers and vendors, RESPSC will no longer be effective under decentralized decisions. (C) 2017 Elsevier Ltd. All rights reserved.