A System Dynamics Model to Assess the Effectiveness of Governmental Support Policies for Renewable Electricity

Abstract

China’s support policy for renewable electricity belongs to a feed-in tariffs scheme. With the rapid development of renewable electricity industries, this set of policies brought about a heavy fiscal burden for the government. The exploration of whether current support policy provided excessive subsidies for renewable electricity is of great practical significance. We hold an idea that the internalization of positive externality is the only criterion for the government to support the development of a renewable electricity industry. The problem of whether the current policy provides excessive subsidies for renewable electricity industry can be solved by assessing whether its positive externality is internalized, as renewable electricity industry has a characteristic of externality. Our study object is an assumed biomass power plant in Jingning County, Gansu Province. A system dynamics model was built. Applying the environmental cost accounting method and net present value analysis method, we connected the techno-economic analysis of the biomass power plant with the measurement of positive externality of biomass power generation together. In this system dynamics model, we developed an indicator to reveal whether the subsidies provided by governmental policies can compensate the positive externality generated by the assumed biomass power plant. This study mainly draws the following conclusions: Firstly, China’s current support policy does provide excessive subsidies for the renewable power industry. The subsidies received by biomass power plants from the government are higher than the positive externality generated by them; secondly, the positive externality measurement of the biomass power industry is influenced by many regional factors; thirdly, without governmental policy support, biomass power plants cannot compete with traditional power companies; fourthly, as biomass power generation is concerned, the current price subsidy intensity is about US$0.0132 higher per kWh than a reasonable level. Furthermore, the parameters frequently applied in the calculation of the prices of pollutant emission reduction in Chinese research papers are relatively small, which is only half of their actual values. Jingning County, situated in inland west-northern China, lacks typicality. There is a limitation in judging whether the government’s support policy for renewable electricity is reasonable through a feasibility analysis of investment in a biomass power generation project. This may be the main drawback of this study.