Abstract
The high logistics costs of biomass feedstock and the involvement of other firms that use biomass and independent suppliers make feedstock acquisition increasingly difficult for biomass power plants. Governments provide feed-in tariffs (FiT) for biomass power plants to help reduce the negative impacts of high raw material costs. Using a game-theoretic approach, we study the optimal government FiT for biomass power plants and explore the effects of biomass feedstock competition and the presence of independent biomass feedstock suppliers on FiT strategy. Our results show that governments should subsidize biomass power plants whose competitiveness exceeds a certain threshold. The entry of a feedstock competitor into the biomass supply chain raises this threshold, but the involvement of an independent biomass supplier will not. However, the involvement of an independent biomass supplier reduces the efficiency of the FiT. In addition, FiT for biomass power plants should not be provided if government funds are below a certain threshold, as it does not increase social welfare. By comparing FiT with an alternative use of government funds, the technology subsidy, we find that the technology subsidy should be adopted instead of FiT if the government funds are below a threshold.
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