Medium and long-term thermal coal contract embedded reparations from the perspective of an evolutionary game

Abstract

Coal-fired electricity enterprises are caught in the dilemma of relative fixed prices and rising costs under the scenario of decarbonization. Meanwhile, soaring market-oriented coal pricing results in coal enterprises’ increasing defaults on thermal coal medium-and long-term contracts (MLC). To investigate the implementation of MLC at the micro- level, this study formalized the contractual behaviors of coal and coal-fired electricity enterprises based on the asymmetric evolutionary game. We formalized the evolving behaviors of both parties using replicator dynamics equations and proved that there were two evolutionary stabilization strategies (ESSs): compliance and coal enterprises’ unilateral default. A multi- agent-based simulation was applied to verify the evolving process of ESSs and determine the critical values of MLC design by sensitive analysis. From the simulation results, coal-fired electricity enterprises do not stop generation under the current carbon quota allocation mechanism, even if carbon emission trading increases electricity generation costs. Coal enterprises choose to “default” when the market price of coal is higher than the contracted price by 18%. However, if the original reparation is increased by 5%, the compliance rate of the coal enterprises improves. Dynamic reparations embedded in the MLC improved enforcement during the contracting period. Moreover, the proposed policy implications have practical significance for enhancing the coordinated operation of coal-electricity energy supply chains.