Dual Competing Photovoltaic Supply Chains: A Social Welfare Maximization Perspective.

Abstract

In the past decades, the inappropriate subsidy policies in many nations have caused problems such as serious oversupply, fierce competition and subpar social welfare in the photovoltaic (PV) industry in many nations. There is a clear shortage in the PV industry literature regarding how dual supply chains compete and the key decision issues regarding the competition between dual PV supply chains. It is critical to develop effective subsidy policies for the competing PV supply chains to achieve social welfare maximization. This study has explored the dual PV supply chain competition under the Bertrand competition assumption by three game-theoretical modeling scenarios (or supply chain strategies) considering either the public subsidy or no subsidy from a social welfare maximization perspective. A numerical analysis complemented by two sensitivity analyses provides a better understanding of the pricing and quantity decision dynamics in the dual supply chains under three different supply chain strategies and the corresponding outcomes regarding the total supply chain profits, the social welfare and the required total subsidies. The key findings disclose that if there are public subsidies, the dual PV supply chains have the strongest intention to pursue the decentralized strategy to achieve their maximal returns rather than the centralized strategy that would achieve the maximal social welfare; however, the government would need to pay for the maximal subsidy budget. Thus, the best option for the government would be to encourage the dual PV supply chains to adopt a centralized strategy since this will not only maximize the social welfare but also, at the same time, minimize the public subsidy. With a smart subsidy policy, the PV industry can make the best use of the subsidy budget and grow in a sustainable way to support the highly demanded solar power generation in many countries trying very hard to increase the proportion of their clean energy to combat the global warming effect. Several subsidy policies such as shared solar energy arrangements and performance-based incentive (PBI) are proposed to integrate the market users and the PV supply chains. This study serves as a pioneering study into the dual PV supply chain research which is very limited in the PV management and policy study literature. The findings and several untended issues provide a foundation for the future PV supply chain studies.