Stackelberg game-based decentralised supply chain coordination considering both futures and spot markets

As generators and retailers can trade energy through either forward contracts or a pool in the electricity markets, we propose a hierarchical structure to capture the supply chain decision-making processes taking into account the interaction between the futures and spot markets. At each level, we model the sequential acting of generators and retailers as a Stackelberg game where generators behave as leaders and retailers behave as followers to maximise their individual payoff. Generators and retailers make decisions of the energy quantity in the spot market in the lower level with respect to the contracts signed in the futures market, while they determine contracts in the upper level with respect to the latest information from the spot market. After verifying the existence of the hierarchical equilibrium, we develop a decentralised algorithm to implement the equilibrium with only local information available for both generators and retailers. In the supply chain regime which incorporates both futures and spot markets, we show that it benefits the electricity market in reducing the pool price. The results are corroborated through numerical examples.