Early contractual relationships in the renewable energy industry: Assessing parties' preferences for timely sustainable growth

The motivation for this dissertation comes from early attempts to establish long-lasting relationships within the emerging supply chain for biomass-based electricity in the Midwest United States. Despite effort exerted by policy makers and government leaders (i.e. federal mandates and market facilitation), renewable electricity has yet to take off. Failure to perform is partially related to the inability of trading parties to devise effective mechanisms and incentive structures to govern biomass transactions in upstream links of the supply chain. In three essays, the present dissertation identifies deterring factors preventing the biomass-based electricity industry from developing and formulates mechanisms that are both effective and implementable from the perspective of supply chain participants.;Essay 1 studies biomass transactions in the Upper Peninsula of Michigan and examines why logging firms (i.e. biomass producers) and a dedicated renewable energy generator (i.e. biomass processors) have failed to accommodate private interests under specification contracts. The Essay borrows a theoretical framework from the incomplete contracts literature to explain that idiosyncratic assets and unforeseen market conditions led previously devised contracts out of the self-enforcing range. As a result, a significant potential was created for the energy generator to hold up logging firms by threatening to reduce its purchases unless logging firms reduced biomass prices. The problem is diagnosed as a hold-up problem (Klein 1996) and a feasible solution is presented. The use of credible commitments and collective action among logging firms could have reduced hold-up potential and led parties to exchange biomass more efficiently.;Combining the case study evidence to other deterring factors previously discussed in the literature, essay 2 and essay 3 examine preference data from agricultural producers -- potential biomass suppliers -- to elaborate mechanisms capable of motivating sustainable relationships. Essay 2 examines whether hesitation towards energy crops, presumably expressed by agricultural producers, emerges from stated preferences for crop attributes. Results indicate that producers are interested in growing crops holding key attributes also found in switchgrass (e.g. lower intensity of production practices when compared to corn/soybeans rotation systems), and that regional characteristics and farming capabilities influence agricultural producers' willingness to convert farmland into acres of switchgrass.;Essay 3 tackles the transaction problem identified in essay 1. The paper examines whether agricultural producers distinguish market situations with high hold-up potential from market situations with low hold-up potential; and whether contracts better equipped to deal with hold-up problems are preferred when such problems are credible. Results indicate that producers tend to misinterpret market conditions and prefer acreage-based contracts regardless of the hold-up potential. There is an indication, however, that propensity to adopt contracts capable of minimizing the negative effects of hold-up problems increases when these problems constitute credible threats.;In light of the results obtained throughout this dissertation, implications to energy crops and bioelectricity initiatives are offered to practitioners as they devise entry strategies in the biomass-based energy industry.