The impact of government subsidies on build-operate-transfer contract design for charging piles in circular economy

Abstract

Purpose: Build-operate-transfer (BOT) contracts are widely used in the construction and operation of charging piles for new energy vehicles worldwide and stipulate that governments grant charging pile operators franchises for a certain period of time to invest in the construction and operation of the charging piles. The charging piles are then transferred to governments when the concession expires. To encourage charging pile operators to build and operate charging piles, governments usually provide two kinds of subsidies, namely construction and operating subsidies. Design/methodology/approach: The authors establish a typical game model to study the optimal BOT contract between a government and a charging pile operator and their preferences for the two kinds of subsidies. Findings: First, the authors show that there are substitution and complementarity effects between the concession period and the subsidy level. Second, the operator prefers the construction subsidy (operating subsidy) when the additional operating cost is low (high). The government prefers the operating subsidy (construction subsidy) when consumer sensitivity to the number of charging piles is low (high) and the concession period is short or long (moderate). Finally, the adjusted joint subsidy can not only improve social welfare but also that the charging pile operator can obtain the same profit as under the operating subsidy at a lower subsidy amount. Originality/value: This work develops the first analytical model to study two subsidies in the construction and operation of charging piles and investigate the optimal BOT contract and subsidy preferences. The insights are compelling not only for the charging pile operator but also for policymakers in practice from a circular economy perspective.