Hybrid Power Generation Supply Chain Financing and Purchasing Strategies with Option Hedging against Disruption

Abstract

Environmental pollution has stimulated cleaner and sustainable energy (CSE) resource consumption which fuels low-carbon electric-power growth. This consumption is particularly affected by two factors. One of them is the power grid’s capital size in the electricity supply chain (ESC) and the other is the carbon emission reduction level elasticity of electricity consumption. Further, the financial strategy directly exerts quantifiable influence on one of the factors of capital size, while the procurement strategy plays a role in another factor. However, the impact of strategic behavior on all participants in the ESC remains unexplored. Thus, we construct a game model for the ESC consisting of two heterogeneous power plants and a strategic power grid with financial constraints, in order to analyze the purchasing and financing strategies for low-carbon electric-power consumption and examine the profit scenario from the credit and option hedging. We find that for the power grid, high self-owned funds level or affluent credit line encourages procurement. And when considering the power grid funds are uniformly distributed on or are constant, this funds property variation surely imposes influence on the wind electricity purchases. We find price elasticity of demand shows monotonic on the purchase when the power grid funds are constant but not necessarily when funds are uniformly distributed. The two power plants pursue the most favorable scenario for profit-maximizing by means of credit interest rate. Whether the power plants increase the financial credit interest is contingent upon option portfolios, the grid’s fund property, and wind yield conditions. We also find whether the relations between the two power plants are competitive or complementary depending on the wind yield rate. Numerical study shows that when the power grid funds are uniformly distributed, executing the double option seems to be the most profitable choice for the power grid and the traditional energy power plant, whereas with the uniform distribution of the grid’s funds, executing the call option but abandoning put is the most profitable to the traditional energy power plant. Moreover, under the grid’s fund of uniform distribution, it can both motivate power user consumption for clean energy generation and expand the power grid’s capital size.