Influence of optimal government subsidies for renewable energy enterprises

Abstract

On the basis of the government subsidies for renewable energy electricity, this study builds a two-stage duopoly model in an industry with a renewable electricity enterprise and a conventional electricity enterprise in the market. Under the assumption of the generalised social welfare maximisation authority, this study discusses the effects of three types of government subsidies, business fixed input subsidy, output subsidy and mixed subsidy. First, the mixed subsidy policy is the best one under generalised social welfare. However, when the cost of renewable energy production or the energy negative coefficient is low, this subsidy policy generates a high electricity price. Second, when the output subsidy is used, the optimal price and optimal output of renewable energy will decrease with the increase of production cost and negative externality coefficient of renewable energy enterprises. Finally, both the optimal price and optimal outputs depend on the level of negative externality and the cost of renewable energy production.