Mitigating wind curtailment risk in China: The impact of subsidy reduction policy

Qiao Qiao, Xianhai Zeng and Boqiang Lin ()

Applied Energy, 2024, vol. 368, issue C, No S0306261924008766

Abstract: China's wind power sector has seen rapid expansion, but it also faces significant challenges such as wind power curtailment. Curtailment typically refers to a situation where wind turbines cannot operate at optimal performance even under normal conditions, leading to the underutilization of available wind energy. This study focuses on the impact of subsidy reduction policies on mitigating the risk of wind power curtailment in zones historically prone to high curtailment risks. By employing a Difference-in-Differences (DID) identification framework, the study uncovers that using the policy announcement year as the treatment period yields an average effect of 1.657, significant at the 1% level, indicating an increase in risk. Conversely, when the policy implementation year is designated as the treatment year, the average treatment effect stands at −1.229, significant at the 5% level, denoting a decrease in curtailment risk. These findings reveal that differentiated subsidy reductions have ultimately decreased wind curtailment risks in zones abundant in resources but with high curtailment risks. This is primarily because the reduction in subsidies has diminished the investment attractiveness of these zones, whereas previously, guaranteed profits had spurred investment. Another significant discovery of the study is that the uniform adjustment approach adopted during the subsidy reduction period led to a surge in installations, subsequently increasing the overall risk. Further analysis indicates that the reduction in wind curtailment risk is primarily achieved through the mechanism of lowering arbitrage prices. These findings underscore the effectiveness of subsidy reduction policies in addressing the challenges of renewable energy curtailment and highlight the importance of careful adjustments to avoid potential risks.

Keywords: Renewable energy; Wind power curtailment; Subsidy reduction; Feed-in tariffs; Difference-in-differences framework; Curtailment risk (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1016/j.apenergy.2024.123493

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