Energy 188 (2019) 116013

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Energy
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Profit allocation in collaborative bioenergy and biofuel supply chains

Evelyn Gao, Taraneh Sowlati*, Shaghaygh Akhtari
Industrial Engineering Research Group, Department of Wood Science, University of British Columbia, 2943-2424, Main Mall, Vancouver, British Columbia,
V6T-1Z4, Canada

a r t i c l e i n f o a b s t r a c t

Article history: In this paper, the profit allocation problem, which was overlooked in the collaborative bioenergy and
Received 10 April 2019 biofuel supply chain literature, is considered. The optimization model for the strategic and tactical
Received in revised form planning of a bioenergy and biofuel supply chain is modified and a number of cooperative game theory
21 August 2019
allocation methods are evaluated for a case study of collaboration among three potential bioconversion
Accepted 25 August 2019
Available online 4 September 2019
facilities in British Columbia, Canada. Moreover, a sensitivity analysis is conducted to evaluate the sta-
bility of the methods with changes in parameters. The results show that the collaboration of three
bioconversion plants would generate the highest profit compared with other coalitions. Based on the
Keywords:
Optimization
results, the savings from collaboration could improve the total net present value by 5%. The results
Forest-based biomass highlight that the profitability and stability of collaboration are closely related to bio-oil market prices
Supply chain collaboration and demand. The proportional allocation methods hardly generate stable (efficiency and individual ra-
Game theory tionality) results. Therefore, caution should be taken about the frequent use of proportional methods for
Cost/profit allocation costs/benefits allocation by the industry. Instead, the nucleolus and equal profit methods are recom-
mended as alternative methods since they are always stable regardless of variations in model parame-
ters, such as bioproduct demand and prices.
© 2019 Elsevier Ltd. All rights reserved.

1. Introduction of bioconversion facilities (e.g., in Refs. [8,9]), at the tactical level to

In forest-rich countries, such as Canada, forest-based biomass is
considered as a promising renewable source of energy to mitigating
climate change [1]. Biomass, if used as a renewable feedstock to
produce value-added products, has the potential to decrease
emissions, boost the local economy, and reduce dependency on
fossil fuels [2]. Despite these benefits, the use of biomass for energy
production has been limited mainly due to biomass characteristics,
e.g., scattered distribution, relatively low energy density and high
moisture content [2e4]. These characteristics contribute to a high
cost of preprocessing, storage, and transportation of biomass,
which would impede the effective utilization of biomass [2e4].
Therefore, many previous studies focused on optimizing the design
and operations of biomass supply chains, which is essential in order
to improve biomass competitiveness. The readers are referred to
review papers in Refs. [2,5e7] for a detailed survey of these studies.
Overall, the existing optimization models addressed decision
making at the strategic level to find the location, type, and capacity
* Corresponding author.
E-mail address: taraneh.sowlati@ubc.ca (T. Sowlati).
determine the flow of biomass and optimal inventory levels (e.g., in
Refs. [10,11]), and at the operational level for short-term planning,
e.g., vehicle routing in Ref. [12]. Most of these papers viewed the
supply chain from a centralized perspective and integrated the
various components in one monolithic model. Under this approach,
it is implicitly assumed that the participants in the supply chains
cooperate with each other. In some cases, this assumption holds
true; for instance, Shabani et al. [11] considered a supply chain
including only one biopower facility which had a contract with its
suppliers and the power authority who purchased the power. In
many other cases, assuming that the participants would cooperate
might not be true. For instance, the supply chain in Ref. [8] included
multiple numbers of bioconversion facilities of various types and
sizes located in three existing sawmill locations. Based on the so-
lution in Ref. [8], the facilities sell and buy sawmill residues to other
locations, which would not be possible without assuming that a
collaboration exists among those facilities. However, the supply
chain participants would strive to maximize their own profit in
reality; therefore, they are willing to cooperate only if there is an
incentive for them, e.g., if they get a higher profit than when they
operate individually. In other words, the collaboration would not
emerge or continue if its participants are not satisfied with the

https://doi.org/10.1016/j.energy.2019.116013
0360-5442/© 2019 Elsevier Ltd. All rights reserved.
2 E. Gao et al. / Energy 188 (2019) 116013
benefit they receive from the collaboration. Therefore, one impor-
tant consideration is to identify how the supply chain benefits
should be allocated among the individual participants in order to
have a complete and thorough analysis.
In the literature, cost/profit allocation problem has been
analyzed often through the framework of “cooperative game the-
ory” to predict the coalition that will form, the joint actions that
groups will take and the resulting collective payoffs [13]. Many
allocation methods have been proposed in the literature. Some of
these methods are based on simple proportional rules and others
are more complicated and based on theoretical concepts from the
game theory [14]. The common methods to allocate costs/benefits
are based on marginal costs (e.g., Shapley value), methods mini-
mizing the maximum unhappiness (e.g., nucleolus), and methods
based on separable and non-separable costs (e.g., equal charged,
alternative avoided cost, and cost gap methods).
Majority of previous studies evaluated the allocation mecha-
nisms in the area of collaborative transportation planning (e.g.,
Refs. [15e28]). Readers are referred to Ref. [14] for a review on
allocation problems in collaborative transportation planning.
Several studies applied allocation mechanisms for problems in the
energy industry (e.g., Refs. [29e34]), water resource management
(e.g., Refs. [35,36]), and manufacturing and production systems
(e.g., Refs. [37e42]).
The application of cost/benefit allocation in bioenergy and bio-
fuel supply chain management has been limited to studies in
Refs. [21,34]. In Ref. [21], Flisberg et al. considered the trans-
portation of biomass from supply sources to bioenergy production
facilities. The authors [21] focused only on the transportation stage
of the supply chain and addressed the collaborative transportation
of forest companies. In Ref. [34], Skaavsgaard et al. considered a
biogas supply chain including manure farmers, a biogas plant, and
an energy conversion facility. Then, the authors [34] evaluated
different allocation mechanisms to distribute the gains achieved in
a vertical collaboration setting (a collaboration between different
stages of the supply chain).
To the best of the authors’ knowledge, no previous study
addressed the cost/allocation problem in biomass supply chains.
Considering that bioenergy and biofuel production has been hin-
dered by high biomass costs, collaboration can be a means for
improving bioenergy and biofuel competitiveness. This is because
the collaboration has proven to promote sustainability, facilitate
knowledge-based solutions [43], and provide opportunities for cost
reduction, customer service improvement, joint investment,
product diversification, etc. [44]. Hence, there is a need for studies
evaluating the allocation of costs and benefits of the collaboration
in biomass supply chains. This paper covers this gap in the litera-
ture by evaluating a horizontal collaboration among multiple
bioconversion facilities based on sharing biomass resources.
The objective of this paper is to quantify the benefits of collab-
oration in the form of biomass sharing and to suggest the proper
allocation methods for profit distribution among supply chain
participants. For this purpose, an optimization model of the forest-
based biomass supply chain [8] is modified to calculate the
maximum net present value (NPV) when different participants
form the collaboration. Then, the total optimized NPV is allocated to
the individual participants using different allocation mechanisms
based on the cooperative game theory. The desirability of each
method is evaluated considering the efficiency, individual ratio-
nality, and stability properties, which will be defined in the next
section. Next, a sensitivity analysis is performed to evaluate the
variations of optimal results to the changes in the cost and avail-
ability of forest-based biomass, the market demand and price of
bioproducts, and the discount rate.
2. Literature review
A review of relevant studies in the literature is presented in this
section. First, the studies are reviewed based on their application
area. Then, the cooperative game theory concepts and the alloca-
tion mechanisms are defined.
2.1. Areas of application
A number of studies in the literature applied and evaluated the
cost/benefit allocation methods or proposed some variants of each
model [14].
Collaborative transportation planning is one area in which the
cost/profit allocation problem has been well explored [14]. In the
forest product industry, Audy et al. [15] focused on the collaborative
planning of transporting logs from supply sources to the wood
processing mills. The collaboration in Ref. [15] included different
stakeholders such as wood buyers (mills) and carrier companies
(e.g., 3rd party logistics) as collaborating participants. The authors
[15] evaluated how the behavior of the collaboration's leader
impacted the distribution of costs and benefits among the partici-
pants. The allocation models in Ref. [15] were developed based on
altruistic and opportunistic leading behaviors. Firsk et al. [16]
investigated the collaboration among 8 forest companies in trans-
porting logs and proposed a new methodology based on the equal
profit method (EPM) to minimize the maximum difference in
pairwise relative savings of the participants in the collaboration.
Similarly, the focus in Ref. [17] was on collaborative transportation
of wood logs and the cost/benefit allocation was done assuming
different leadership scenarios. Contrary to Ref. [15], Audy et al. [17]
defined the leadership scenarios based on the size of the com-
panies. Audy et al. [18] allocated the cost savings due to the
collaboration in transportation planning to 4 furniture companies.
The allocation in Ref. [18] was based on proportional equal savings
and variants of weighted volume. The cost-saving allocations in
Ref. [18] were performed assuming 4 logistical scenarios. The sce-
narios [18] were different in the warehouse locations and the
transportation strategy, i.e., delivering shipments in full truckloads
only v.s. delivering shipments as they become ready or less than a
truckload. For an application in the furniture industry, Audy et al.
[19] modified the equal payment profit method proposed in
Ref. [16] to allocate the cost savings achieved when 4 furniture
companies planned their transportation together. Lehoux et al. [20]
studied the collaboration between a pulp and paper company and
one of its buyers, and identified a method to allocate the gain
achieved from the collaboration to each partner. For a country-wide
study of forest fuel transport in Sweden, Flisberg et al. [21]
distributed the potential savings arising from the collaboration to
61 companies to transport biomass in different forms including
woodchips, slush fuelwood, etc.
In cargo and shipping industry, Agarwal et al. [22] introduced a
mechanism for sharing the costs and benefits of collaboration in
transportation among different cargo carriers. The mechanism in
Ref. [22] allowed for side payments which were proportional to the
shipping capacity owned by each carrier on each route. Liu et al.
[23] also evaluated the profit allocation methods when companies
shared their transportation vehicles. The collaboration between
two shipping companies who would share the same transportation
vehicle to transport their shipments was studied in Ref. [24]. The
costs and gains of the collaboration were distributed between the
two companies considering four types of cost-sharing agreements,
under which they either paid for their own cost (no sharing at all),
shared the cost of vehicles, shared the cost of vehicles and the cost
of handling, or shared the total logistics costs [24]. Ramaekers et al.
[25] evaluated the cost allocation for a multi-modal barge
 E. Gao et al. / Energy 188 (2019) 116013
transportation case. The participating shippers collaborated by
bundling freights and sharing vessel capacity. The incurred costs of
collaboration were distributed among the participants.
In the oil and gas industry, the collaborative transportation
planning were addressed in Refs. [26,27]. For a vehicle-routing
problem, Engevall et al. [26] distributed the total transportation
cost of oil and gas products among the customers that were served.
Massol et al. [27] distributed the gains of collaborative trans-
portation of natural gas among different supplier countries.
In a recent application, Lu et al. [28] employed cooperative game
theory to distribute the cost savings of a ride-sharing service to its
customers.
Cost/benefit allocation problem was explored in other areas, but
to a lesser extent compared with transportation planning.
In the energy industry, cooperative game theory methods have
been applied for transmission expansion planning and allocating
the costs to its beneficiaries, e.g., in Refs. [29,30]. Hu et al. [31]
considered the allocation of start-up costs among electricity con-
sumers. In Ref. [32], Wu et al. designed a tri-generation energy
network for meeting the heat, electricity and cooling demands of a
hospital, an apartment, and an office. Then, the total cost savings
from the collaboration, achieved from generating energy in a
centralized energy network instead of individual energy systems,
were allocated among the energy users. Peng et al. [33] shared the
profit among the power plants, transmission and distribution
companies, and electricity retailers as the players of a spot elec-
tricity market in China. Considering a biogas production supply
chain, Skovsgaard et al. [34] allocated the collaboration gains
among the livestock farmers, a biogas production facility, and a
conversion facility, where biogas was upgraded to other products,
such as heat and power.
In water resource management, the costs of a dam system were
allocated among the participatory uses including navigation, flood
control, and power generation in a study by Straffin et al. [35]. Jeong
et al. [36] allocated the costs of expanding the flood control infra-
structure among the local governments in Korea.
In manufacturing and production systems, Li et al. [37] allocated
a fixed cost to different decision-making units of a large organiza-
tion. In a study by Liu et al. [38], it was assumed that multiple job
owners would share a single machine for completing their jobs.
Then, the authors allocated the cost savings from collaboration in
rescheduling their jobs when the machine became unavailable for
some time. An et al. [39] considered resource sharing among the
three serial stages of a system. Assuming that each of the stages is a
participant in collaboration, the increased profit due to resource
sharing was distributed to each of the three stages. For an appli-
cation in the mining industry, Xu et al. [40] distributed the total
income from selling processed mining products to a processing
facility and its supplier. Sharing the costs of installing the remote
frequency identification device (RFID) tags and also the additional
benefits from the enhanced supply chain visibility was evaluated by
Ref. [41]. For a typical dairy production supply chain, the cooper-
ative game theory was applied by Ciardielli et al. [42] to allocate the
monetized production emissions to different entities of a supply
chain including the feed producer, milk producer, processor,
distributor, and consumer.
2.2. The allocation mechanisms
Many allocation methods have been proposed to address the
problem of properly distributing the total cost/profit among
collaborative partners. These methods can be divided into 1) pro-
portional allocation methods, and 2) allocation mechanisms based
on game theory concepts [25,45].
The proportional method is commonly used in practice [23].
3
This method distributes the total value according to each partner's
engagement in the collaboration, e.g., based on shipping volume,
stand-alone value, or other parameters. One reason for the frequent
use of this allocation method is that it is easy to understand,
compute, and implement. A number of researchers evaluated the
proportional method (e.g., in Refs. [16,17,20,23,26,27]). However, as
pointed out in these studies, the proportional method does not
ensure a stable collaboration in the long run. This means that a
participant may gain more when operating individually; therefore,
such a participant will leave the collaboration [25].
Methods based on the cooperative game theory, on the other
hand, have been gaining popularity because they can provide many
fairness-related properties, which include efficiency, individual
rationality, stability, anonymity, symmetry, and additivity [45].
An allocation is said to be efficient if the total cost of the coa-
lition is distributed among all the participants, referred to players in
the game theory [46]. If players cannot obtain better costs in any
sub-coalition compared to their allocated costs in the grand coali-
tion, the allocation satisfies individual rationality [46]. The set of
all allocations that fulfill efficiency and individual rationality con-
ditions will form the core. Any allocation in the core can be
considered as a stable solution [46]. The allocation possess the
anonymity property when the identity of the players does not
change the allocation [46]. Based on the symmetry, two players
with the same contribution should receive/pay the same gain/cost
[46]. In order to meet the additivity property, the cost allocation of
a combination of several separate coalitions should be equal to the
sum of the separate allocation values of these coalitions [46].
The above-mentioned properties provide a good basis for
designing and comparing cost allocation methods; however, the
difficulties arise if one method aims to possess too many properties
[47]. In fact, no single method can satisfy all these properties [47].
Some of the most well-known allocation methods in the literature
are summarized below. The methods are introduced from the
perspective of costs. However, they can all be used to deal with
profit allocation problems since there are no essential differences
between allocating costs and allocating profits.
2.2.1. The Shapley value
The Shapley value [48] is a widely used cost allocation method.
The focus in this method is on the fair allocation of the costs ac-
cording to the average marginal contributions of each player [13].
Therefore, the Shapely value is applied mainly in situations where
the contributions of different players are not equal. For instance,
the Shapely value was evaluated in Refs. [36e41] as a mechanism
for cost/profit allocation.
For a given a coalition, the Shapley value always exists and
provides a unique allocation, which is helpful for decision-makers
to choose a unique solution [13]. Additionally, fairness is valued
when allocating the costs/profits from the grand coalition [39]. The
Shapley value involves simple computation, especially when there
are few players [39]. However, the Shapley value is not necessarily
in the core [28], i.e., the allocation according to the Shapley value
may not be stable [13].
2.2.2. The nucleolus
In the nucleolus [49], the aim is to find an allocation that min-
imizes the worst inequity [14]. For this purpose, for each coalition,
an excessive function is defined to measure the amount (the size of
inequity) by which a coalition falls below its potential [14]. The
excessive can be interpreted as the measure of a coalition's satis-
faction or happiness with the allocation [14]. The nucleolus method
finds the allocation that minimizes the maximum unhappiness,
taking all sub-coalitions into consideration [14]. Similar to the
Shapley value, the nucleolus always exists and is unique; therefore,
4 E. Gao et al. / Energy 188 (2019) 116013

it is another frequently used cost allocation method [39]. For

Start
instance, it was employed in Refs. [16,21,28].
One drawback with the nucleolus allocation is related to its
computation, which could be cumbersome for the cases with a
large number of players [39].
Form all the possible coalitions among the
2.2.3. Methods based on separable and non-separable costs bioconversion facilities (with 1, 2, and 3 players)
In these methods, the grand coalition's total cost is divided into
two parts: separable costs and non-separable costs. The separable
cost for a player is defined as the amount of increase in the grand
coalition's total cost due to that player's entry, i.e., the marginal cost
[50]. Each player is responsible for his or her own marginal cost. Modify the supply chain optimization model based on
The total separable cost of the grand coalition is the sum of all the coalition
players' separable cost. After subtracting the total separable costs
from the grand coalition's total cost, the remaining part is the non-
separable cost [50], which is then distributed based on different
allocation methods:

1) Equally Charged Method (ECM) assumes the same weight for For each coalition, run the modified optimization model
each player. Therefore, the ECM ignores the differences in the to calculate the optimal net present value (NPV)
individual player's contribution to the coalition. ECM applica-
tions were demonstrated in Refs. [16,21].
2) Alternative Cost Avoided Method (ACAM) allocates the non-
separable cost based on each player's savings [47]. Some
studies that evaluated this method are [16,21,27].
Allocate the NPV among the players using different
3) Cost Gap Method (CGM) allocates the non-separable cost based
on the minimal cost each player needs to pay to form a coalition
allocation mechanisms
if all other players in this coalition only pay for their separable
costs [47]. The cost gap method was investigated in Ref. [16].

Evaluate the stability conditions for each allocation

2.2.4. The equal profit method method
The equal profit method (EPM) can be formulated as a linear • Individual rationality
programming model [16]. The objective of this model is to mini- • Efficiency
mize the maximum difference in relative savings among any pair of
players in the collaboration [16]. The conditions of individual ra-
tionality and efficiency are included as the constraints of the linear
programming model [16]. The EPM and its modified versions have
been used in Refs. [16,18,19,21]. Equal profit method may result in Perform the sensitivity analysis and check the stability
non-unique allocations [51]. When the allocation is not unique, the conditions for each allocation method
allocated cost of at least two players are allowed to change under
the same objective function value, and one player may be allocated
a higher cost as a result of this arbitrariness. To prevent this,
additional modifications based on lexicography can be added to the
equal profit method [51].
Compare and evaluate the results
3. Materials and methods

In this paper, proportional methods and the cost/allocation

mechanisms that were summarized in sections 2.2.1 to 2.2.4 are
evaluated and compared for a collaborative bioenergy and biofuel End
supply chain. The flow chart in Fig. 1 shows an overview of the
Fig. 1. An overview of the profit allocation process in this paper.
evaluation process.
Each allocation method is evaluated based on efficiency and
individual rationality, as stability properties. The considered supply
industry, they have access to abundant biomass resources,
chain in this study is obtained from an optimization model previ-
including sawmill residues and harvesting residues. Moreover, this
ously developed in Ref. [8] for a case study in British Columbia,
region has been significantly affected by mountain pine beetle
Canada.
infestation, which has left a large number of beetle-killed trees to
be salvaged and utilized. Currently, the residues from remote and
3.1. Supply chain optimization model and case study
private sawmills in this area are burned or landfilled, and the ma-
jority of harvesting residues is left on the ground in the forest and
A case involving three communities in interior British Columbia,
burned. The burning of biomass results in regional air pollution and
Canada (similar to that in Ref. [8]) is considered here. These com-
carbon emissions. The use of forest-based biomass for bioenergy
munities are either off the grid or challenged by the lack of
and other bioproducts could resolve some of the issues in the
connection to the natural gas pipelines. Since forestry is the main
 E. Gao et al. / Energy 188 (2019) 116013 5

region since establishing bioconversion facilities could help entre

into new markets, generate additional incomes, and create more
employment opportunities.
For this case study, a mixed-integer linear programming model
was developed in a previous study [8] to optimize the design of a
bioenergy and biofuel supply chain as depicted in Fig. 2.
The considered supply chain starts at forest-based biomass
sources including forest blocks to procure harvesting residues and
sawmills to obtain hog fuel and wood chips. The harvesting resi-
dues include tree tops and branches, as well as mountain pine
beetle (MPB) killed logs. Before being transported to the conversion
facilities, harvesting residues, which are piled at the roadside, are
chipped there. Therefore, utilizing harvesting residues requires
preprocessing, consequently additional equipment and labor.
Sawmill residues can be directly sent to bioconversion facilities
without further processing.
Once the residues are delivered to conversion facilities, they are
stored and converted to final products. Biofuels can be sold to the
local or export markets. Bioenergy is primarily used to meet the
internal demand in the plants, and then distributed to nearby
communities.
The potential locations for conversion facilities are considered to
be at the three sawmills located in each community. The conversion
facilities are denoted as plant A, plant B, and plant C. Fig. 3 shows
the locations of the three plants. The sawmill chosen for plant A has
Fig. 3. General locations of plant A, plant B, and plant C (Adopted from Ref. [52]).
the ability to generate approximately 16,150 odt of clean chips and
8,550 odt of hog fuel per year. The sawmill chosen for plant B
generates approximately 6,000 odt of sawdust and 1,600 odt of hog Table 1
fuel annually. The sawmill in plant C has about 1,400 odt of clean Optimum solution of the supply chain given in Ref. [8].
chips and 1,000 odt of hog fuel available per year. These sawmill Plants Prescribed conversion technology Bioproducts
residues are not committed to other industries; therefore, they can

2 MW biomass boiler (CHP)
be used internally at no additional cost or sold to other conversion A

45,000 tonnes/year pellet mill
Heat, electricity, pellets
facilities. B
0.5 MW biomass gasifier (Power only) Electricity
The optimization model provided the optimum solution for the
1 MW biomass boiler (CHP)
C Heat, electricity, bio-oil
case when all three plants collaborate with each other. In other
600 odt/day pyrolysis plant
Maximized net present value $60,726 thousand
words, these plants can buy or sell sawmill residues as needed. The
optimization model was solved using AIMMS 4.67™ software that
integrates modeling language, a graphical user interface, and nu-
merical solver [53]. Table 1 shows the optimum solution, including theory methods are used to allocate the NPV to each individual
decisions on the type of conversion technology in each location and plant.
the maximum NPV of the supply chain. It was suggested in Ref. [8]
that plant A should install a combined heat and power (CHP) boiler 3.2. Collaboration description and modified optimization model
and one pellet mill. The produced heat and electricity would be
mainly for internal use, and the pellets would be sent to the export The collaboration among plants A, B, and C is assumed to be in
markets. Plant B should have a small-scaled biomass gasifier, pro- terms of exchanging sawmill residues. It means one plant can buy
ducing electricity only. Plant C should be equipped with a biomass or sell sawmill residues from/to another plant only if they collab-
CHP boiler and a pyrolysis plant. Similarly, the heat and electricity orate. Otherwise, the sawmill residues at each plant are either used
would be largely used to meet the plant's energy demand, while the internally, burned, or sent to a landfill. The cost of storing, burning
bio-oil would be sold to the local distribution centers. The instal- or landfilling of residues is not considered. The purchase price of
lation of all technologies should happen in year 1, and the plants sawmill residues is estimated to be $25/odt for clean wood chips
should maintain operation until the end of the planning horizon. and $10/odt for hog fuel [54]. In addition to sawmill residues, the
The collaboration of three plants could generate the NPV of around plants can also buy forest residues and MPB infected logs from cut-
$60,726 thousand. One important question is how to allocate the blocks. The total purchase and preprocessing cost is about $25/odt
total NPV to each of the plants fairly. Herein, cooperative game [8], but the delivered cost of these types of biomass varies
considerably depending on the distance from the cut-blocks to the
plants.
The three plants can collaborate in seven coalitions as described
in Table 2. The coalitions labelled as C1, C2, and C3 represent the
scenarios that plants do not collaborate with each other, but
operate individually, with the analysis focusing on plant A, plant B,
and plant C, respectively. C4 is the collaboration between plant A
and B. Similarly, C5 and C6 are the collaboration between plant A
and plant C, and the collaboration between plant B and plant C,
respectively. Coalitions C1 to C6 are also referred to as sub-
Fig. 2. Forest-based biomass supply chain. coalitions, in which some plants are not included. The coalition
6 E. Gao et al. / Energy 188 (2019) 116013

Table 2 individually, it can earn a NPV of about $20,461 thousand (NPVC1 ).

Possible coalitions formed by different plants. On the contrary, if plant A joins C7, the NPV allocated to plant A by
Coalition Participating plant(s) the Shapley method is around $20,516 thousand, which is higher
C1 Plant A
than NPVC1 . Therefore, if plant A is rational, it should be willing to
C2 Plant B join C7 using the Shapley value allocation. In other words, the in-
C3 Plant C dividual rationality of C1 is fulfilled under the Shapley value.
C4 Plant A&B The second example is to examine the individual rationality of
C5 Plant A&C
C4 when the allocation is proportional to the volume of biomass
C6 Plant B&C
C7 Plant A&B&C used at the plant. The NPV of collaborating plants in C4, which are
plants A and B, would be about $20,684 thousand (NPVC4 in
Table 3). Plant A and plant B also have the option to join C7. If they
do so, the total NPV of these two plants in C7 is about $15,169
C7, which includes all three plants, is the so-called grand coalition.
thousand, calculated by adding up the allocated NPV to plant A
In order to find the optimized NPV for coalitions C1 to C6, the
($14,808 thousand) and the allocated NPV to plant B ($361 thou-
optimization model is modified, which is explained in detail in
sand) based on the “Volume of biomass used” in Table 4. It is
Appendix B. The modified model is run for each coalition. In each
obvious that plant A and plant B can get a higher NPV in C4 than in
run, the non-collaborating plants are excluded from the optimiza-
C7; therefore, they do not have the incentive to participate in C7.
tion model; therefore, their sawmill energy demand and available
This indicates that the individual rationality of C4 is not satisfied by
sawmill residues are set to zero. The collaborating plants must have
this proportional allocation method. This assessment is conducted
the same technology as prescribed in the original optimization
for all coalitions and for each allocation method. If one method can
model to guarantee comparable results. Table 3 shows the opti-
fulfill both the efficiency and individual rationality properties, then
mized result for each coalition, denoted as NPVC1 to NPVC7 . As
this method is considered to be a stable allocation method.
shown in Table 3, C7 has the highest NPV among all the coalitions.
Table 5 summarizes the stability of each allocation method. It is
Therefore, the collaboration of plants A, B and C is the most prof-
shown that the two proportional allocation methods and the ECM
itable one, and the three plants should have the incentive to form
are not stable. More specifically, these methods cannot guarantee
C7 if the profit is allocated fairly.
individual rationality.
The Shapley value, nucleolus, ACAM, CGM, and EPM provide
4. Profit allocation results
stable allocations; therefore, these methods are recommended for
the collaboration. Combining the results shown in Tables 4 and 5, it
Allocation methods introduced in Section 3 are used to
is observed that the Shapley value, nucleolus, ACAM, and CGM
distribute NPVC7 among plants. The allocation results are shown in
generate similar results. Among these methods, the Shapley value
Table 4.
requires less computational effort so it is the recommended
In Table 4, the column “Stand-alone NPV” represents the NPV
method in real-life applications for small-scaled collaborations.
earned by plants A, B, and C when there is no collaboration and the
The allocations to plant B and plant C given by EPM differs
plants work individually, the values of which are equal to NPVC1 ,
significantly from the results given by the other methods. Accord-
NPVC2 , and NPVC3 . It is noticed that the sum of NPVC1 , NPVC2 , and
ing to EPM, the NPV allocated to plant B is approximately $229
NPVC3 is about $57,929 thousand, which is less than NPVC7 ($60,726
thousand. This amount is decreased by about 86% compared with
thousand). This proves that the three-plant collaboration is more
that by other stable allocations, and most of this reduction is
beneficial than plants operating alone without exchanging sawmill
rewarded to plant C. For instance, the allocated NPV to plant C in-
residues. When three plants collaborate, the total NPV increases by
creases from around $38,676 thousand in ACAM to $39,947 thou-
about 5%.
sand in EPM. This result accords with the concepts behind EPM,
The efficiency and individual rationality properties are exam-
which is to equalize the relative saving at each plant as much as
ined to compare the evaluation methods.
possible.
The efficiency property means that the total NPV of the grand
coalition, NPVC7 , should be allocated to the plants and nothing
5. Sensitivity analysis
should be leftover. By adding up the allocated NPVs to plants under
each method, shown in the row “Sum” in Table 4, it is clear that
5.1. Variations in NPV to parameter changes
every allocation method has a sum that is equal to NPVC7 . Conse-
quently, these allocation methods all satisfy the property of
A sensitivity analysis was conducted to examine the variations
efficiency.
of the optimal solution to the changes in optimization model input
To assess the property of individual rationality, two examples
parameters. The grand coalition (C7) was considered as the base
are given for illustration purposes. The first example is to examine
case scenario. The studied parameters were: bioproduct price,
whether the individual rationality of C1 is satisfied when the
bioproduct market demand, forest residue price (the costs of pur-
Shapley value is applied. When plant A chooses to work
chase and preprocessing), forest residue availability, sawmill res-
idue price (the cost of purchase), and discount rate. These
Table 3 parameters were increased or decreased by 50%. Table 6 shows the
Optimized NPV of profit for each coalition. values of some parameters, excluding heat market demand, elec-
tricity market demand, and forest residue availability, which vary
Optimized NPV of profit for coalitions Value (in thousand Canadian dollars)
each month.
NPV C1 (plant A) 20,461
Fig. 4 summarizes the results of the sensitivity analysis. It is
NPV C2 (plant B) 213
NPV C3 (plant C) 37,253 observed that the NPV is most sensitive to changes in the bio-oil
NPV C4 (plants A & B) 20,684 price. When it decreases by 50%, the NPV turns into a negative
NPV C5 (plants A & C) 57,856 value. On the other hand, when the bio-oil price increases by 50%,
NPV C6 (plants B & C) 40,176 the total NPV doubles as plant C can earn much more from selling
NPV C7 (plants A & B & C) 60,726
bio-oil. The second most impactful change is the decrease in the
 E. Gao et al. / Energy 188 (2019) 116013 7

Table 4
Profit allocation to each plant according to different methods.

Locations Stand-alone NPV Profit allocated to each plant according to different methods (in thousand Canadian dollars)

Proportional based on Shapley Nucleolus Separable and non-separable EPMd

a b c
Stand-alone NPV Volume of biomass used ECM ACAM CGM

Plant A 20,461 21,449 14,808 20,516 20,505 19,637 20,506 20,505 20,549
Plant B 213 224 361 1552 1524 1958 1556 1543 229
Plant C 37,253 39,052 45,556 38,658 38,696 39,130 38,663 38,676 39,947
Sum 57,929 60,726 60,726 60,726 60,726 60,726 60,726 60,726 60,726
a
ECM: Equal Charged Method.
b
ACAM: Alternative Cost Avoided Method.
c
CGM: Cost Gap Method.
d
EPM: Equal Profit Method.

Table 5
Stability property of the allocation methods.

Characteristics Allocation methods

Proportional based on Shapley Nucleolus Separable and non-separable EPMd

based on

Stand-alone NPV Volume of biomass used ECMa ACAMb CGMc

Efficiency property Yes Yes Yes Yes Yes Yes Yes Yes
Individual rationality property No No Yes Yes No Yes Yes Yes
Stability property No No Yes Yes No Yes Yes Yes
a
ECM: Equal Charged Method.
b
ACAM: Alternative Cost Avoided Method.
c
CGM: Cost Gap Method.
d
EPM: Equal Profit Method.

Table 6
Parameter values in sensitivity analysis.

Parameter Value in base case Value (50%) Value (þ50%)

Bio-oil price ($/m3 ) 266.4a 133.2 399.6

Pellet price ($/tonne) 160b 80 240
Heat price ($/MWh) 95c 47.5 142.5
Electricity price ($/MWh) 106.8d 53.4 160.2
Bio-oil market demand (m3=year) 10,176.2d 5088.1 15,624.3
Pellet market demand (tonnes/year) 11,250c 5625 16,875
Forest residue price ($/odt) 24.7d 12.4 37.1
Sawmill residue purchase price ($/odt) Wood chips 25c 12.5 37.5
Hogfuel 10c 5 15
Discount rate (%) 10e 5 15
a
Derived from Ref. [55].
b
[56].
c
[54].
d
[8].
e
[57].

bio-oil market demand, which lowers the annual amount of bio-oil
that could be sold by the collaboration. In contrast, the increase in
bio-oil market demand has no impact on NPV due to the limited
bio-oil production capacity at plant C. These findings highlight the
importance of bio-oil, indicating that this collaboration should only
be formed when the market conditions of bio-oil are promising.
There is an inverse relationship between the NPV and the dis-
count rate, which ranks the third most sensitive parameter in Fig. 4.
Higher discount rates give the cash flows that occur earlier more
influence on the NPV. In this case study, since the earlier cash flows
are mostly investment costs (cash outflows), when the discount
rate increases, the investment costs take a more important role and
the total NPV decreases. In fact, the discount rate in this study (10%)
is much higher than the average in forestry (usually below 5%)
([58,59]), as this study intends to be conservative about the pros-
pect of bio-products.
Some parameters like pellet price, forest residue price, and
forest residue availability have an intermediate impact on the NPV.
Other parameters, such as pellet market demand and sawmill
residue price, are not influential at all, which can be due to different
reasons. For the pellet demand, even if it is reduced by 50%, it is still
far from being saturated with the amount of pellets that can be
produced at plant A annually. As for the sawmill residue price, it can
only influence the NPV at individual plants. However, when it
comes to the supply chain as a whole, the revenue from selling
sawmill residues at one plant is exactly the cost of buying sawmill
residues at another plant. Therefore, the revenue and the cost
cancel each other out, and the total NPV remains unchanged.
8 E. Gao et al. / Energy 188 (2019) 116013
Bio-oil price -206%
Bio-oil market demand -162%
Discount rate
Pellet price
Forest residue price (purchase+preprocessing)
Forest residue availability
Heat price in C
Heat market demand in C
Electricity price in A
Electricity market demand in A
Electricity price in B
Pellet market demand
Heat price in A
Sawmill residue purchase price in A/B/C
-240.0% -180.0% -120.0% -60.0%
Variation in NPV with decrease in parameters ( -50% )
Fig. 4. of variation in NPV with þ50% and 50% changes in parameters.
As shown in Fig. 4, some changes in parameters result in
negative NPVs, namely the decreases in bio-oil price and bio-oil
market demand. When the bio-oil price or bio-oil market de-
mand decreases by 50%, the reduction in NPV exceeds 100%.
Therefore, a proper range of changes in these parameters was
considered in order to have a positive NPV.
5.2. Stability of allocation methods to parameter changes
In this section, allowable ranges of parameter changes were
narrowed down so that none of the coalitions would have negative
NPV. In order to achieve this, the approach of trial and error was
adopted. The optimization model was run for C1 to C7 repeatedly
with changes in each parameter until finding a proper range that
can guarantee a positive NPV in every coalition.
After a series of trials, it was concluded that bio-oil price could
vary within ±10%; otherwise NPV could be negative, which in-
dicates the economic infeasibility of supply chain. The other
influential parameters including bio-oil market demand, discount
rate, pellet price, and forest biomass price could change within
±20%. Using these ranges, the sensitivity of NPV allocation to the
changes in parameters are examined.
Table 7 presents the impact of parameter changes on the sta-
bility of NPV allocation.
6. Discussion
The results of this research highlighted that multiple bioenergy
and biofuel facilities within a region could achieve higher profits if
they all form an alliance and collaborate. In this context, a proper
allocation method would be required to distribute the gains of the
collaboration among the participants such that the collaboration
sustains.
228%
-56% 101%
-34% 50%
-40% 41%
-36% 15%
-8% 8%
-7% 5%
-2% 4%
-0.5%
-0.1%0.1%
0.0% 60.0% 120.0% 180.0% 240.0%
Variation in NPV with increase in parameters (+50%)
In practice, the straightforward allocation mechanisms, such as
the proportional and Shapely value methods, might be preferable
due to their mathematical simplicity. However, the results of this
study discourages the use of the proportional methods for allo-
cating costs/benefits of collaboration because they never generated
stable results in any of the scenarios. In the case of the Shapley
value method, the stability was found to be sensitive to variations
in bio-oil market demand and selling price. When the bio-oil price
dropped by 10% or the bio-oil market demand decreased by 20%,
the Shapley value was no longer stable. Stability ensures that no
single participant or sub-coalition of participants would benefit
from leaving the grand coalition. Therefore, the stability condition
should be met to ensure a sustained collaboration.
Among the allocation mechanisms that were evaluated in this
work, the nucleolus, alternative cost avoided method, cost gap
method, and equal profit method were always stable regardless of
the changes to the parameters. Therefore, these methods are
preferable if the participants in the collaboration value stability.
The nucleolus method; however, might be very difficult to imple-
ment because of its mathematical complexity. In this paper and also
in previous studies, e.g. Ref. [16], the number of coalitions that were
evaluated was limited; therefore, the use of the nucleolus method
was possible without experiencing any computational difficulty.
However, the computation of the nucleolus can become very
complicated and intractable for large number of coalitions. In large
case studies, simplifications or approximation methods should be
adopted for its application.
The equal profit method and its modifications are advantageous
in equalizing relative savings among players. This feature may be of
great importance in the early stages of a horizontal collaboration
because an initial allocation with similar benefits for all participants
can significantly encourage the collaboration [25]. However, one
issue is the non-uniqueness of the equal profit method, which was
 E. Gao et al. / Energy 188 (2019) 116013 9

Table 7
Stability of allocation methods to parameter changes.

Scenarios Allocation methods

Proportional based on Shapley Nucleolus Separable and non-separable based EPMd

on

Stand-alone NPV Volume of biomass used ECMa ACAMb CGMc

Base case Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
Bio-oil price þ10% Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
Bio-oil market demand þ20% Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
Discount rate -20% Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
Pellet price þ20% Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
Forest residue price -20% Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
Bio-oil price -10% Not Stable Not Stable Not Stable Stable Not Stable Stable Stable Stable
Bio-oil market demand -20% Not Stable Not Stable Not Stable Stable Not Stable Stable Stable Stable
Discount rate þ20% Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
Pellet price -20% Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
Forest residue price þ20% Not Stable Not Stable Stable Stable Not Stable Stable Stable Stable
a
ECM: Equal Charged Method.
b
ACAM: Alternative Cost Avoided Method.
c
CGM: Cost Gap Method.
d
EPM: Equal Profit Method.

pointed out in Ref. [51]. This would lead to a lack of clarity in the
characterization of the obtained solution by the equal profit
method [51].
According to the results of the sensitivity analyses, the collab-
oration of the three plants in this study was the most sensitive to
the fluctuations in bio-oil price. It was found that when the bio-oil
price decreased by 23%, the supply chain was no longer profitable.
The reason behind this impact was that the production of bio-oil
was the most profitable bio-product conversion option in this
collaboration, accounting for over 70% of the supply chain's total
revenue.
In this paper, similar allocation results were obtained using
stable mechanisms, which validates the results. Moreover, these
observations are validated as similar studies in the literature drew
the same conclusions. For instance, the stability issues were
concluded in Refs. [16,21] for the proportional methods and in
Ref. [60] for the Shapely value method.
7. Conclusions
In this paper, the quantitative benefits of collaboration in the
forest-based biomass supply chain were examined, and profit
allocation solutions were provided when the collaboration was in
the form of sharing sawmill residues. A case involving three bio-
product conversion plants located in British Columbia was stud-
ied. A mixed integer linear programming model was modified to
optimize the NPV of profits that could be gained by different co-
alitions of plants. The NPV was then distributed to individual plants
using different game theory allocation methods. The important
findings of this paper are listed as follows:
product. Among all assessed allocation methods, the nucle-
olus, alternative cost avoided method, cost gap method, and
equal profit method were always stable regardless of the
changes in the bio-oil price, bio-oil market demand, discount
rate, pellet price, or forest residue price. Therefore, these allo-
cation methods are recommended for this case and other similar
supply chains.
3) The supply chain in this study was most sensitive to changes in
the bio-oil price, 23% deduction of which would result in zero
NPV for the collaboration.
This study presented a new application of cooperative game
theory in biomass supply chain management. In this collaboration,
multiple bioenergy and biofuel conversion facilities of different
sizes and types located at existing sawmills would buy/sell sawmill
residues from/to each other. In the future, a research topic that can
be investigated is the intangible benefits of collaboration, including
but not limited to the growth in geographic coverage, the access to
different markets, and the improvement in service levels. Also, the
establishment of collaboration usually involves numerous negoti-
ations, which are frequently analyzed in the approach of non-
cooperative game theory [61]. The application of this approach in
forest-based biomass is also an interesting research opportunity.
Acknowledgment
The authors would like to thank for the financial support pro-
vided by the Natural Sciences and Engineering Research Council of
Canada (Discovery Research Grants RGPIN-2014-04758 and RGPIN-
2019-04563 to Dr. Taraneh Sowlati) to conduct this research.

1) The three-plant collaboration was more beneficial than any
other coalition, and the collaboration could increase the total
NPV by about 5%;
2) The proportional methods, which are frequently used for cost
and benefit allocation in the forest products industry, never
generated stable results. The stability of the Shapely value
depended on the market demand and the price of the bio-oil
Appendix A. The optimization model formulation
Table A-1, Table A-2, and Table A-3 present the sets, parameters,
and decision variables of the optimization model developed in
Ref. [8]. A simplified version of the mathematical formulation is
given below.
10 E. Gao et al. / Energy 188 (2019) 116013

Table A-1
List of sets of the model

Sets

B Set of biomass types, index b2B

I Set of biomass supply points, index i2I
K Set of candidate conversion technologies, index k2K
L Set of locations for conversion plants, assumed to be at the sawmills, index l2L
M Set of markets, index m2M
P Set of bioenergy and biofuel products, index p2P
P e 3P Set of bioenergy products, index e2Pe
P f 3P Set of biofuel products, index f 2Pf
S Set of annual time periods, index s2S
T Set of monthly time periods, index t2T

Table A-2
List of parameters of the model

Parameters

BAt;s
b;i
Biomass availability of type b at supply point i in month t of year s
BC b Biomass purchase cost per odt for biomass type b
CDb;e;k Conversion facility energy demand to convert one odt biomass type b into bioenergy e by technology k
CL Biomass loss due to chipping
EC p;l Energy cost when fossil-based energy, instead of bioproduct p, are used to meet one unit of energy demand at location l
FC k Annual fixed cost of conversion technology k
IC k Investment cost of conversion technology k
IR Discount rate
MDt;s p;m
Market demand of bioproduct p at market m in month t of year s
PC b Biomass preprocessing cost per odt for biomass type b
PRp;m Unit selling price of bioproduct p in market m
SC b;l Biomass monthly storage cost per odt for biomass type b at location l
SC f ;l Biofuel monthly storage cost per unit for biofuel type f at location l
SDt;s
e;l
Sawmill demand for energy type e at location l in month t of year s
T C b;i;l Biomass transportation cost for biomass type b from supply point i to location l
T C p;l;m Bioproduct transportation cost for bioproduct type p from location l to market m
T Sk Maximum capacity of technology k (measured in terms of biomass input)
UF k Minimal utilization factor of technology k
VC b;k Variable cost of converting one odt biomass type b by technology k
YLb;e;k Yield of converting biomass type b to bioenergy product type e by technology k

Table A-3
List of decision variables of the model

Decision variables

ot;s
b;i;l
Amount of biomass type b from supply point i to transport to plant location l in month t of year s
qsk;l Binary variable: 1, if technology k is installed at location l in annual time period s; 0, otherwise
ut;s
b;k;l
Amount of biomass type b to use by technology k at location l in month t of year s

vt;s
e;l
Amount of bioenergy product e to use to meet conversion facility energy demand at location l in month t of year s

wt;s
e;l
Amount of bioenergy product e to use to meet sawmill energy demand at location l in month t of year s

xt;s
p;l;m
Amount of bioenergy and biofuel product p to sell from location l in to market m in month t of year s

yt;s
f ;l
Amount of biofuel product f to store at location l in month t of year s

zt;s
b;l
Amount of biomass type b to store at location l in month t of year s

planning horizon. The first term is the sum of the annual profit
The objective function of the optimization model is presented in (annual revenue minus annual cost) over all years. The second term
Equation (A-1): is the annual investment cost of technology k at location l over all
years. It is assumed that the technology k has to be installed at the
0 beginning of a time period (year), not necessarily the first time
X ðTotalRevenues  TotalCosts Þ
Max NPV ¼ @ period (year). In other words, it is possible for the optimization
s ð1 þ IRÞs model to select a technology k at location l in any years during the
P P  1 planning horizon.
s s1
k l ICk qk;l  qk;l The total revenue in time period s is determined in Equation (A-
 A (A-1) 2) by adding up the sales of bioenergy and biofuel products, the
ð1 þ IRÞs1
savings from replacing fossil-based energy which is currently used
Equation (A-1) maximizes the net present value (NPV) of the to meet the energy demand, and the sales of surplus sawmill res-
total profit that can be obtained by the supply chain over the idues from one conversion plant to another conversion plant.
 E. Gao et al. / Energy 188 (2019) 116013 11

XXXX X XX X t;s
TotalRevenues ¼ PRp;m  xt;s þ ECe;l xp;l;m  MDt;s
p;m cp2P m2M t2T s2S (A-13)
p;l;m
p l m t e2Pe l t l
X X XX
 SDt;s
e;l
þ BCb  ot;s
b;i;l
Equation (A-13) ensures that in each time period, the amount of
b i¼l0 sl l t each bioenergy product generated in all locations should not be
(A-2) more than its market demand.
XX X t;s
The total cost in time period s includes biomass purchase, pre- YLb;e;k  ut;s ¼ vt;s þ wt;s þ xe;l;m c e2Pe l2L t2T s2S
b;k;l e;l e;l
processing, transportation and storage costs, as well as fixed pro- b k m
duction, variable production, biofuel storage and bioproduct
(A-14)
transportation costs, as shown in Equation (A-3) to Equation (A-10).
Besides, if the amount of the produced bioenergy is not enough to Equation (A-14) states that the bioenergy products generated at
cover the entire energy demand by the sawmill and the conversion each location are either used to meet the energy demand of the
facility at location l, fossil-based energy will be purchased, the cost sawmill and the conversion facility or sold to external markets.
of which is calculated by Equation (A-11). X t;s
XXXX UFk  TSk  qsk;l  ub;k;l  TSK  qsk;l k2K l2L s2S t2T
t;s
BiomassPurchaseCosts ¼ BCb  ob;i;l (A-3) b
b i l t (A-15)

XXXX t;s
Equation (A-15) sets the lower and upper limits for the utiliza-
BiomassPreprocessingCosts ¼ PCb  ob;i;l (A-4) tion rate of the conversion facility installed at each location.
b i l t
qsk;l  qs1
k;l c s2S k2K l2L (A-16)
XXXX
BiomassTransportationCosts ¼ TCb;i;l  ot;s
b;i;l
(A-5)
t
Equation (A-16) ensures the continuous operation of the con-
b i l
version facility. Once the technology is installed at one location, it
XXX should be in operation until the end of the planning horizon. In
BiomassStorageCosts ¼ SCb;l  zt;s
b;l
(A-6) addition to the above constraints, all decision variables are non-
b l t
negative variables.
XX
FixedProductionCosts ¼ FCk  qsk;l (A-7)
k l Appendixs B. Modifications to the original optimization
model
XXXX
VariableProductionCosts ¼ VCb;k  ut;s
b;k;l
(A-8)
b k l t In the modified model, two subsets C and N are added to
distinguish the collaorating plants (Eq. (B-1)) and non-collabrating
X XX plants (Eq. (B-2)).
BiofuelStorageCosts ¼ SCf ;l  yt;s
f ;l
(A-9)
f 2Pf l t C4L; set of collaborating plants (B-1)

XXXX
BioproductTransportationCosts ¼ t;s
TCp;l;m  xp;l;m N 4 L; set of non  collaborating plants (B-2)
p l m t
For all non-collaborating plants in the subset N, since they are
(A-10) not collaborating and not included in the optimization model, their
X XX sawmill energy demand SDt;s e;l
and sawmill residue availability BAt;s
b;i
FossilbasedEnergyCosts ¼ ECe;l are set to be zero (Eq. (B-3) and Eq. (B-4)) so that the collaborative
e2Pf l t plants in the subset C will not exchange sawmill residue with them
XX  X t;s  or fulfill their energy demand. One may notice that the notation of
 CDb;e;k  ut;s  vt;s þ SDt;s  we;l (A-11) BAt;s
b;i
uses i instead of l. This is because in the model the set I con-
b;k;l e;l e;l
b k l tains not only forest cut blocks but also plants (Fig. 2 in Section 3.1),
as the plants can also be viewed as the supply points of sawmill
One may notice that the sawmill energy demand SDt;s appears in
e;l residues from the perspective of collaboration.
the calculation of both the total revenue (Equation (A-2)) and the
total cost (Equation (A-11)). This reflects the consideration that
SDt;s
e;l
¼ 0 cl2N (B-3)
when there is no conversion facility installed at one sawmill, i.e.,
the sawmill maintains status quo, its profit regarding bioproduct
conversion should be zero. BAt;s
b;i
¼ 0 ci2N (B-4)
The optimization model is subject to a number of constraints, and
the main ones are listed here (Equation (A-12) to Equation (A-16)): In the original optimization model, a binary decision variable qsk;l
is used to determine what technologies should be installed at each
1 X t;s plant. However, in the modified model, in order to have comparable
 ob;i;l  BAt;s c b2B i2I s2S t2T (A-12)
1  CL b;i results, the collaborating plants should have the same technology
l
type and size (as prescribed in the original model) in all coalitions,
Equation (A-12) restricts that in each time period, the amount of while the non-collaborating plants should not install any conver-
each biomass type purchased from each supply point should not sion technologies as they are excluded from the optimization
exceed the maximum availability of this type of biomass in this model. Therefore, qsk;l is not a decision variable anymore. Instead,
time period. the value of qsk;l is determined by Eq. (B-5) and Eq. (B-6).
12 E. Gao et al. / Energy 188 (2019) 116013
cl 2 C; s2S : (B-5)
8
>
>
< l ¼ plant A; k ¼ 2 MW CHP biomass boiler or 45000tonnes=year pellet mill;
qsk;l ¼ 1; if l ¼ plant B; k ¼ 0:5 MW power  only biomass gasifier;
>
>
: l ¼ plant C; k ¼ 1 MW CHP biomass boiler or 600 odt=day pyrolysis plant;
qsk;l ¼ 0, Otherwise
cl 2 N; s2S; k2K : (B-6)
qsk;l ¼ 0
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