The role of feed-in tariff in the curtailment of wind power in China

Fang Xia, Xi Lu and Feng Song

Energy Economics, 2020, vol. 86, issue C

Abstract: While China's wind power initiative has experienced rapid growth, serious curtailment issues persist. Though some studies have investigated this matter, we explain this phenomenon from the novel perspective of excess capacity. We first set up a theoretical model to explore the mechanism behind excess investment and find that the ‘sticky’ feed-in tariff (FIT) and declining costs of wind power generate high mark-up for wind power investors, leading to a higher probability of excessive investment. The theoretical prediction is empirically tested with a probit and tobit model using provincial-level data between 2009 and 2016. The estimation results show that a 0.1 yuan increase in the mark-up leads to a 2%–3% increase in the rate of curtailed wind power. Based on the estimation results, we simulate several scenarios to assess quantitatively how an improved policy design could have alleviated the curtailment issue. Simply increasing the frequency of the FIT rate adjustment while maintaining the same subsidy reduction level between 2009 and 2016 could have reduced the curtailed wind power by 23 to 27 billion kwh, accounting for 15%–17% of actual curtailed wind power. If the policy were better designed to reflect the declining trend of wind power costs more accurately, the curtailment rates could have been further reduced by 2.81%, corresponding to a reduction in wasted wind energy of >43 billion kwh (or 28% of actual curtailment). Although accepting curtailment for a certain period could help to accelerate renewable energy deployment, our analysis shows that the FIT policy design could have been improved to reduce welfare loss. These findings can not only assist the Chinese government in framing effective policies, but also may be applied to other emerging technologies or industries that require subsidy support.

Keywords: Wind curtailment; Excess capacity; Feed-in tariff; Wind power; Renewable energy policy (search for similar items in EconPapers)
JEL-codes: Q42 Q48 R11 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S014098831930458X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:86:y:2020:i:c:s014098831930458x

DOI: 10.1016/j.eneco.2019.104661

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().