A game-theoretic approach for examining government support strategies and licensing contracts in an electricity supply chain with technology spillover: A case study of Iran

Technology spillover is evident in the renewable energy sector due to the significant development of technology. However, the lack of proper laws and regulations is an obstacle for technology-leader renewable energy suppliers to promote technological innovation. Therefore, some suppliers are interested in free-riding behavior instead of investing in their technologies. Consequently, we investigate the role of government support strategies and licensing contracts in promoting technological innovations under market failure by applying a game-theoretic approach. We consider government supports under two strategies: fixed-in-tariff (FIT) and grid's subsidy (GS); and cooperation between the rival renewable energy suppliers under two licensing contracts: royalty licensing (RL) and joint venture (JV). The two competitor renewable energy suppliers, the grid company, and the government are considered as players. One of these suppliers is a technology leader, and the other is a technology follower. The decision variables are the wholesale electricity price, level of electricity reliability, the quantity of electricity, and the subsidy amount. Based on the results of the case study, the government strategies provide more development of technology than the cooperation strategy between the two suppliers. The lowest and the highest pricing of electricity occur in the GS and RL scenarios, respectively. •We study a renewable electricity supply chain with technology spillover.•We investigated government role and licensing contracts to prevent market failure.•Electricity pricing, level of reliability, and the order quantity are considered.•Nash and Stackelberg competitions are established between the players.•Several managerial insights based on a case study of Iran are presented.