A game-theoretic model of private power production

Private power production has sprung up all around the world, especially in developing countries with rapidly increasing demands and shortage of finance. BOT (build-operate-transfer) 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