Regional feed-in tariff mechanism for photovoltaic power generation in China considering tradable green certificate revenue

Abstract

This study introduces a new regional feed-in tariff (FIT) pricing mechanism for solar photovoltaic (PV) energy in China, informed by real option (RO) theory and incorporating the increasing significance of tradable green certificate (TGC) policy revenues. The mechanism aims to balance government and consumer burdens with investor benefits. By factoring in additional income from green certificate sales, the study calculates the internal rate of return (IRR) to fall between 8 and 16% and uses a Monte Carlo simulation to determine optimal FITs for 30 Chinese provinces. These optimal FITs are then compared with current FITs, which are categorized by three types of solar resource regions, revealing that many current FITs are set within an inappropriate range and require adjustment. Additionally, the study observes minor differences in provincial FITs within six regional power grids, suggesting that setting FIT guide prices at the regional grid level is more practical than by solar resource regions. A sensitivity analysis examines the impact of green certificate prices, carbon prices, and technological advancements on the FIT for solar PV, comparing scenarios in a realistic environment versus a more favorable one. The results indicate that in a better environment—with higher TGC and carbon prices and encouraged corporate innovation—the FIT for solar PV is closer to the cost of coal-fired electricity, thus promoting grid parity. The study advocates for adjustments to the FIT mechanism, higher TGC and carbon prices, and the encouragement of innovation to enhance the competitiveness of solar PV energy in China’s energy market.