A game-theoretic model of private power production

Abstract

Private power production has sprung up all around the world, especially in developing countries with rapidly increasing demands and shortage of finance. BOT arrangements have emerged as one of the most important options of private power production. Based on oligopoly theory, this paper proposes a Stackelberg game model between a BOT company and a utility where they negotiate a long-term energy contract. It is assumed that a host utility purchases electricity from a BOT company at its "avoided cost", and sells its electricity to end users at its average cost. Taking asymmetric pricing into account, our Stackelberg game model is transferred into a two-level optimization problem, and is then solved by an iterative algorithm.