Power Market Equilibrium under the Joint FIP-RPS Renewable Energy Incentive Mechanism in China

Abstract

In order to support the development of renewable energy, countries around the world have adopted certain renewable energy incentive mechanisms, including feed-in tariff (FIT) and renewable portfolio standard (RPS). Based on the official report concerning renewable energy consumption issued by the Chinese government in 2018, FIT is no longer an ideal renewable incentive mechanism for China. The increasing financial burden of renewable subsidies on the government has prompted a transition from FIT to a more market-based RPS mechanism. However, the abrupt transformation from FIT to RPS without any transitions might potentially cause problems, including a lack of incentives for market participants and a high market risk. Feed-in premium (FIP), which is a transformation based on FIT, can increase the flexibility of the mechanism and play an important role in the transitional period. However, to date, there has only been limited research work that has explored the effect of implementing FIP-RPS in the development of renewable energy in China. It is still not clear how this transition could be carried out smoothly. Therefore, this research was aimed to devise a joint FIP-RPS mechanism and further develop the optimal combination ratio of the two, so as to obtain a socially optimal mechanism design. The simulation results showed that, at different stages of renewable energy development, FIP and RPS should be implemented according to their distinct characteristics, and the joint FIP-RPS mechanism should be combined with different ratios. It could be indicated that the proposed joint FIP-RPS mechanism not only excels at promoting renewable energy, but is also capable of maintaining desirable market prices and social welfare in this transitional period, as compared to FIP and RPS implemented alone. In the future, a certain degree of FIP-RPS implementations to this type of energy transition would be one of the preferred methods that could be implemented to have a considerable influence on China’s national energy plan. This is because the combination of the two mechanisms not only reduces the financial burden of the government, but also plays an active role in the renewable energy market.

Subsidizing the Shift to Renewable Energy in Korea: A Levelized Cost Analysis and Computation of Required Subsidies

“…RPS stands for Renewable Portfolio Standard, which is a policy mechanism that requires electricity providers to produce or purchase a certain percentage of their power from renewable sources such as wind, solar, biomass, or geothermal energy. The goal of RPS is to increase the use of renewable energy and reduce reliance on fossil fuels, thereby reducing greenhouse gas emissions and mitigating the impacts of climate change (Cai et al, 2019; Kong et al, 2022; Kwon, 2018). FiT is a policy mechanism that provides financial incentives to renewable energy producers by guaranteeing a fixed price for every unit of electricity they feed into the grid (Jenner et al, 2013; Mu et al, 2021).…”

What Is the Impact of the Renewable Energy Power Absorption Guarantee Mechanism on China’s Green Electricity Market?

“…FIP introduces a certain degree of market competition on the basis of FIT, which is a transitional way of renewable energy power generation from full acquisition to full bidding, which can effectively control costs and guide the sustainable development of renewable energy [15]. South Korea experienced a drastic transformation from FIT to RPS in 2012, and most renewable energy technologies were constantly updated and increased [16].…”

Optimal Decision-Making of Trans-Provincial Electricity Market Subjects with Risks under Renewable Portfolio Standards

“…Jiang et al [20] comparatively analyzed the implementation of the FIT and RPS mechanisms, and reviewed, in detail, the effect of the RPS mechanism on the behavior of electricity market subjects. Cai et al [21] and Wang et al [22] identified the optimal combination ratio of the TIP-RPS joint mechanism, which is conducive to promoting the consumption of renewable energy and enhancing social welfare. Zhao et al [23] and Hao et al [24] comparatively analyzed the effects of RPS, FIT, and their combination on renewable energy.…”

“…q RPS = q use , q use ≥ q pro q pro , q use < q pro (21) where π s 2 represents the profits of power retailers selling nonbundled energy and C 2 represents the wholesale price of power retailers buying nonbundled energy. In addition to the purchase cost of conventional energy, the wholesale price also includes the cost of green certificates corresponding to conventional energy in the green certificate market, C 2 represents their power purchase cost, C TGC represents the cost of green certificates corresponding to conventional energy in the green certificate market, π RPS represents the cost of purchasing green certificates by power retailers, p RPS represents the price of green certificate, q RPS represents the quantity of green certificate purchased by the province, q use represents the quantity of green certificate required by power consumers, and q pro represents the quantity of RPS quota requirements.…”