An Appraisal on China’s Feed-In Tariff Policies for PV and Wind Power: Implementation Effects and Optimization

Abstract

China’s FIT policies for PV and wind power are leading policies to promote the low-carbon transformation of the power system. We design composite models based on real options and the cost–benefit analysis, using the Evaluation Model of Implementation Effects and the Optimization Model for Policy Design to evaluate the design and implementation effects of FIT policies for PV and wind power. The results of the Evaluation Model of Implementation Effects are the following: (1) The economic and environmental competitiveness of developing PV and wind power projects under the parity policy raised significantly (2.524 to 3.136 times increase). (2) The last two-phase FIT policies fail to encourage power generation enterprises to carry out R&D activities, and supporting policies can be considered to offer incentives for R&D activities in upstream industries of power generation. (3) The substitution effect of green certificates on government subsidies is limited, and new market compensation mechanisms such as CCER can be introduced nationwide. The results of the Optimization Model for Policy Design are the following: (1) There is still space for a 10.306% to 22.981% reduction in feed-in tariffs during the parity policy. (2) Due to the risk of the mismatch in the cost attribute and uneven investment across regions, the parity policy is not suitable for long-term implementation, so the feed-in tariffs for PV and wind power should progressively be disconnected from feed-in tariffs for thermal power.