Power production competition under different regulations: a social welfare perspective

Abstract

With the prevalence of low-carbon transmission, traditional energy power generation enterprises (TGEs) are facing increasing pressure. By comparison, renewable energy power generation (REPG) holds the advantage of low carbon. To promote the development of REPG, various regulation policies have been implemented. This paper aims at investigating the interplays between renewable energy power generation enterprise (RGE) and TGE’s production decisions under different regulation policies from the social welfare perspective. We consider the feed-in tariff (FIT), renewable portfolio standard (RPS), and carbon tax (CT) policies. Our analyses reveal several major findings. First, the influence of the regulation policy on RGE and TGE’s power generation quantities depends on the gap between REPG cost and traditional energy power generation (TEPG) cost. Second, the regulator’s optimal regulation policy hinges on his emphasis on the economic benefit and the environmental protection. Third, as the REPG cost decreases and the regulator’s emphasis on environmental protection increases, the regulator’s optimal policy from the social welfare perspective exhibits a trend of ‘FIT-CT-RPS.' Fourth, TGE’s preferred policy focuses on FIT or CT, and RGE’s preferred policy is always RPS regardless of how the regulator’s attention on environmental protection changes. On this basis, managerial implications for promoting REPG are provided.