IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v142y2025ics0140988325000179.html
   My bibliography  Save this article

Contract selection decision of hybrid energy power supply chain under cap-and-trade: From the perspective of supply disruption risk

Author

Listed:
  • Sun, Lexuan
  • Li, Wei
  • Song, Jie

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.

Suggested Citation

  • Sun, Lexuan & Li, Wei & Song, Jie, 2025. "Contract selection decision of hybrid energy power supply chain under cap-and-trade: From the perspective of supply disruption risk," Energy Economics, Elsevier, vol. 142(C).
  • Handle: RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000179
    DOI: 10.1016/j.eneco.2025.108194
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325000179
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.eneco.2025.108194?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Sam Aflaki & Serguei Netessine, 2017. "Strategic Investment in Renewable Energy Sources: The Effect of Supply Intermittency," Manufacturing & Service Operations Management, INFORMS, vol. 19(3), pages 489-507, July.
    2. Heikki Peura & Derek W. Bunn, 2021. "Renewable Power and Electricity Prices: The Impact of Forward Markets," Management Science, INFORMS, vol. 67(8), pages 4772-4788, August.
    3. Geoffrey G. Parker & Burcu Tan & Osman Kazan, 2019. "Electric Power Industry: Operational and Public Policy Challenges and Opportunities," Production and Operations Management, Production and Operations Management Society, vol. 28(11), pages 2738-2777, November.
    4. Ambec, Stefan & Crampes, Claude, 2021. "Real-time electricity pricing to balance green energy intermittency," Energy Economics, Elsevier, vol. 94(C).
    5. Tian, Xiaoge & Chen, Weiming & Hu, Jinglu, 2023. "Game-theoretic modeling of power supply chain coordination under demand variation in China: A case study of Guangdong Province," Energy, Elsevier, vol. 262(PA).
    6. Azad, Nader & Hassini, Elkafi, 2019. "Recovery strategies from major supply disruptions in single and multiple sourcing networks," European Journal of Operational Research, Elsevier, vol. 275(2), pages 481-501.
    7. Ambec, Stefan & Crampes, Claude, 2021. "Real-time electricity pricing to balance green energy intermittency," Energy Economics, Elsevier, vol. 94(C).
    8. Hu, Benyong & Xu, Dong & Meng, Chao, 2017. "Inconsistency of a retailer's optimal policies and channel performance under revenue sharing contracts," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 53-65.
    9. Rameshwar Dubey & Angappa Gunasekaran & Thanos Papadopoulos, 2019. "Disaster relief operations: past, present and future," Annals of Operations Research, Springer, vol. 283(1), pages 1-8, December.
    10. Oliver Hart & John Moore, 2008. "Contracts as Reference Points," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 1-48.
    11. Mahmut Parlar & Defne Berkin, 1991. "Future supply uncertainty in EOQ models," Naval Research Logistics (NRL), John Wiley & Sons, vol. 38(1), pages 107-121, February.
    12. Tan, Qinliang & Ding, Yihong & Ye, Qi & Mei, Shufan & Zhang, Yimei & Wei, Yongmei, 2019. "Optimization and evaluation of a dispatch model for an integrated wind-photovoltaic-thermal power system based on dynamic carbon emissions trading," Applied Energy, Elsevier, vol. 253(C), pages 1-1.
    13. Ji, Jingna & Zhang, Zhiyong & Yang, Lei, 2017. "Comparisons of initial carbon allowance allocation rules in an O2O retail supply chain with the cap-and-trade regulation," International Journal of Production Economics, Elsevier, vol. 187(C), pages 68-84.
    14. Brian Tomlin, 2006. "On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks," Management Science, INFORMS, vol. 52(5), pages 639-657, May.
    15. Cai, Tianxing & Zhao, Chuanyu & Xu, Qiang, 2012. "Energy network dispatch optimization under emergency of local energy shortage," Energy, Elsevier, vol. 42(1), pages 132-145.
    16. Yang, Lei & Zhang, Qin & Ji, Jingna, 2017. "Pricing and carbon emission reduction decisions in supply chains with vertical and horizontal cooperation," International Journal of Production Economics, Elsevier, vol. 191(C), pages 286-297.
    17. Xu, Xiaoping & Zhang, Wei & He, Ping & Xu, Xiaoyan, 2017. "Production and pricing problems in make-to-order supply chain with cap-and-trade regulation," Omega, Elsevier, vol. 66(PB), pages 248-257.
    18. Ambec, Stefan & Crampes, Claude, 2012. "Electricity provision with intermittent sources of energy," Resource and Energy Economics, Elsevier, vol. 34(3), pages 319-336.
    19. Rintamäki, Tuomas & Siddiqui, Afzal S. & Salo, Ahti, 2020. "Strategic offering of a flexible producer in day-ahead and intraday power markets," European Journal of Operational Research, Elsevier, vol. 284(3), pages 1136-1153.
    20. Xu, Xiaoping & He, Ping & Xu, Hao & Zhang, Quanpeng, 2017. "Supply chain coordination with green technology under cap-and-trade regulation," International Journal of Production Economics, Elsevier, vol. 183(PB), pages 433-442.
    21. Wang, Feng & Diabat, Ali & Wu, Lunwen, 2021. "Supply chain coordination with competing suppliers under price-sensitive stochastic demand," International Journal of Production Economics, Elsevier, vol. 234(C).
    22. Li, Ji-cai & Zhou, Yong-wu & Huang, Wenyan, 2017. "Production and procurement strategies for seasonal product supply chain under yield uncertainty with commitment-option contracts," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 208-222.
    23. Jörnsten, Kurt & Lise Nonås, Sigrid & Sandal, Leif & Ubøe, Jan, 2013. "Mixed contracts for the newsvendor problem with real options and discrete demand," Omega, Elsevier, vol. 41(5), pages 809-819.
    24. Gérard P. Cachon & Martin A. Lariviere, 2001. "Contracting to Assure Supply: How to Share Demand Forecasts in a Supply Chain," Management Science, INFORMS, vol. 47(5), pages 629-646, May.
    25. S. Du & F. Ma & Z. Fu & L. Zhu & J. Zhang, 2015. "Game-theoretic analysis for an emission-dependent supply chain in a ‘cap-and-trade’ system," Annals of Operations Research, Springer, vol. 228(1), pages 135-149, May.
    26. Oliveira, Fernando S. & Ruiz, Carlos & Conejo, Antonio J., 2013. "Contract design and supply chain coordination in the electricity industry," European Journal of Operational Research, Elsevier, vol. 227(3), pages 527-537.
    27. Erjie Ang & Dan A. Iancu & Robert Swinney, 2017. "Disruption Risk and Optimal Sourcing in Multitier Supply Networks," Management Science, INFORMS, vol. 63(8), pages 2397-2419, August.
    28. Vishal V. Agrawal & Şafak Yücel, 2022. "Design of Electricity Demand-Response Programs," Management Science, INFORMS, vol. 68(10), pages 7441-7456, October.
    29. Lennart C. Johnsen & Abdolkarim Sadrieh & Guido Voigt, 2021. "Short‐term vs. Long‐term Contracting: Empirical Assessment of the Ratchet Effect in Supply Chain Interaction," Production and Operations Management, Production and Operations Management Society, vol. 30(7), pages 2252-2272, July.
    30. Feng, Hairong & Zeng, Yinlian & Cai, Xiaoqiang & Qian, Qian & Zhou, Yongwu, 2021. "Altruistic profit allocation rules for joint replenishment with carbon cap-and-trade policy," European Journal of Operational Research, Elsevier, vol. 290(3), pages 956-967.
    31. Wang, Lizhi & Mazumdar, Mainak & Bailey, Matthew D. & Valenzuela, Jorge, 2007. "Oligopoly models for market price of electricity under demand uncertainty and unit reliability," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1309-1321, September.
    32. Zhou, Kaile & Wei, Shuyu & Yang, Shanlin, 2019. "Time-of-use pricing model based on power supply chain for user-side microgrid," Applied Energy, Elsevier, vol. 248(C), pages 35-43.
    33. Tsao, Yu-Chung & Vu, Thuy-Linh, 2019. "Power supply chain network design problem for smart grid considering differential pricing and buy-back policies," Energy Economics, Elsevier, vol. 81(C), pages 493-502.
    34. Ernst Fehr & Oliver Hart & Christian Zehnder, 2011. "Contracts as Reference Points--Experimental Evidence," American Economic Review, American Economic Association, vol. 101(2), pages 493-525, April.
    35. Basu, Preetam & Avittathur, Balram, 2018. "Pricing and sourcing strategies for competing retailers in supply chains under disruption riskAuthor-Name: Kumar, Milan," European Journal of Operational Research, Elsevier, vol. 265(2), pages 533-543.
    36. Yusen Xia & Karthik Ramachandran & Haresh Gurnani, 2011. "Sharing demand and supply risk in a supply chain," IISE Transactions, Taylor & Francis Journals, vol. 43(6), pages 451-469.
    37. Ernst Fehr & Oliver Hart & Christian Zehnder, 2008. "Contracts as reference points � experimental evidence," IEW - Working Papers 393, Institute for Empirical Research in Economics - University of Zurich.
    38. Xu, Jiuping & Wang, Fengjuan & Lv, Chengwei & Huang, Qian & Xie, Heping, 2018. "Economic-environmental equilibrium based optimal scheduling strategy towards wind-solar-thermal power generation system under limited resources," Applied Energy, Elsevier, vol. 231(C), pages 355-371.
    39. Gupta, Varun & Ivanov, Dmitry & Choi, Tsan-Ming, 2021. "Competitive pricing of substitute products under supply disruption," Omega, Elsevier, vol. 101(C).
    40. Yang, Lei & Hu, Yijuan & Huang, Lijuan, 2020. "Collecting mode selection in a remanufacturing supply chain under cap-and-trade regulation," European Journal of Operational Research, Elsevier, vol. 287(2), pages 480-496.
    41. Kostas Bimpikis & Ozan Candogan & Shayan Ehsani, 2019. "Supply Disruptions and Optimal Network Structures," Management Science, INFORMS, vol. 65(12), pages 5504-5517, December.
    42. Oliveira, Fernando S. & Ruiz, Carlos, 2021. "Analysis of futures and spot electricity markets under risk aversion," European Journal of Operational Research, Elsevier, vol. 291(3), pages 1132-1148.
    43. Ciwei Dong & Bin Shen & Pui-Sze Chow & Liu Yang & Chi To Ng, 2016. "Sustainability investment under cap-and-trade regulation," Annals of Operations Research, Springer, vol. 240(2), pages 509-531, May.
    44. Zheng, Qi & Zhou, Li & Fan, Tijun & Ieromonachou, Petros, 2019. "Joint procurement and pricing of fresh produce for multiple retailers with a quantity discount contract," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 16-36.
    45. Wang, Bangjun & Ji, Feng & Zheng, Jie & Xie, Kejia & Feng, Zhaolei, 2021. "Carbon emission reduction of coal-fired power supply chain enterprises under the revenue sharing contract: Perspective of coordination game," Energy Economics, Elsevier, vol. 102(C).
    46. Xu, He, 2010. "Managing production and procurement through option contracts in supply chains with random yield," International Journal of Production Economics, Elsevier, vol. 126(2), pages 306-313, August.
    47. Li, Yun & Yuan, Jiahang & Chen, Siyuan & Wu, Yanzi, 2024. "Optimal wind power capacity decision consider commitment contracts under uncertain power supply and electricity demand in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 201(C).
    48. Milstein, Irena & Tishler, Asher, 2011. "Intermittently renewable energy, optimal capacity mix and prices in a deregulated electricity market," Energy Policy, Elsevier, vol. 39(7), pages 3922-3927, July.
    49. Oke, Adegoke & Gopalakrishnan, Mohan, 2009. "Managing disruptions in supply chains: A case study of a retail supply chain," International Journal of Production Economics, Elsevier, vol. 118(1), pages 168-174, March.
    50. Süleyman Demirel & Roman Kapuscinski & Man Yu, 2018. "Strategic Behavior of Suppliers in the Face of Production Disruptions," Management Science, INFORMS, vol. 64(2), pages 533-551, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xu, Song & Govindan, Kannan & Wang, Wanru & Yang, Wenting, 2024. "Supply chain management under cap-and-trade regulation: A literature review and research opportunities," International Journal of Production Economics, Elsevier, vol. 271(C).
    2. Bai, Qingguo & Chen, Jiguang & Xu, Jianteng, 2023. "Energy conservation investment and supply chain structure under cap-and-trade regulation for a green product," Omega, Elsevier, vol. 119(C).
    3. Liu, Zhongyi & Li, Mengyu & Zhai, Xin, 2022. "Managing supply chain disruption threat via a strategy combining pricing and self-protection," International Journal of Production Economics, Elsevier, vol. 247(C).
    4. Kelei Xue & Ya Xu & Lipan Feng, 2018. "Managing Procurement for a Firm with Two Ordering Opportunities under Supply Disruption Risk," Sustainability, MDPI, vol. 10(9), pages 1-32, September.
    5. Kelei Xue & Yongjian Li & Xueping Zhen & Wen Wang, 2020. "Managing the supply disruption risk: option contract or order commitment contract?," Annals of Operations Research, Springer, vol. 291(1), pages 985-1026, August.
    6. Sina Abbasi & Babek Erdebilli, 2023. "Green Closed-Loop Supply Chain Networks’ Response to Various Carbon Policies during COVID-19," Sustainability, MDPI, vol. 15(4), pages 1-30, February.
    7. Zhitao Xu & Adel Elomri & Shaligram Pokharel & Fatih Mutlu, 2019. "The Design of Green Supply Chains under Carbon Policies: A Literature Review of Quantitative Models," Sustainability, MDPI, vol. 11(11), pages 1-20, May.
    8. Yexia Zhang & Wei Chen & Weide Chun, 2025. "Research status and trend prospects of the carbon cap-and-trade mechanism," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 27(2), pages 5097-5130, February.
    9. Yuan Yuan & Feng Cai & Lingling Yang, 2020. "Renewable Energy Investment under Carbon Emission Regulations," Sustainability, MDPI, vol. 12(17), pages 1-15, August.
    10. Xu, Xiaoping & He, Ping & Zhou, Li & Cheng, T.C.E., 2023. "Coordination of a platform-based supply chain in the marketplace or reselling mode considering cross-channel effect and blockchain technology," European Journal of Operational Research, Elsevier, vol. 309(1), pages 170-187.
    11. Chunhai Yu & Yingxiang Zhang & Ling Liu & Thomas W. Archibald, 2024. "Low-carbon supply chain strategy and contract coordination considering manufacturers′ fairness concerns," Operational Research, Springer, vol. 24(4), pages 1-51, December.
    12. Xu, Song & Fang, Lei, 2020. "Partial credit guarantee and trade credit in an emission-dependent supply chain with capital constraint," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 135(C).
    13. Wen Cheng & Qunqi Wu & Fei Ye & Qian Li, 2022. "The Impact of Government Interventions and Consumer Green Preferences on the Competition between Green and Nongreen Supply Chains," Sustainability, MDPI, vol. 14(10), pages 1-34, May.
    14. Yuheng Ren & Wenliang Bian & Haicheng Li & Xiaxia Ma, 2023. "Ordering Decisions with an Unreliable Supplier under the Carbon Cap-and-Trade System," Sustainability, MDPI, vol. 15(24), pages 1-23, December.
    15. Cao, Kaiying & Guo, Qiang & Xu, Yuqiu, 2023. "Information sharing and carbon reduction strategies with extreme weather in the platform economy," International Journal of Production Economics, Elsevier, vol. 255(C).
    16. Hongxia Sun & Jie Yang & Yang Zhong, 2020. "Optimal Decisions for Two Risk-Averse Competitive Manufacturers under the Cap-and-Trade Policy and Uncertain Demand," IJERPH, MDPI, vol. 17(3), pages 1-17, February.
    17. Guillaume Roels & Christopher S. Tang, 2017. "Win-Win Capacity Allocation Contracts in Coproduction and Codistribution Alliances," Management Science, INFORMS, vol. 63(3), pages 861-881, March.
    18. Cao, Yunzhi & Zhu, Xiaoyan & Yan, Houmin, 2022. "Data-driven Wasserstein distributionally robust mitigation and recovery against random supply chain disruption," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 163(C).
    19. Zhang, Xuefeng & Li, Zhe & Li, Guo, 2024. "Grandfather-based or benchmark-based: Strategy choice for carbon quota allocation methods in the carbon neutrality era," Renewable and Sustainable Energy Reviews, Elsevier, vol. 192(C).
    20. Faqi Xie & Yushuang Deng & Huiru Chen, 2023. "Pricing and Quantity Decisions under Asymmetric Carbon Emission Reduction Information and Cap-and-Trade Mechanism," IJERPH, MDPI, vol. 20(3), pages 1-27, January.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000179. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.