The impact of government subsidies on capacity utilization in the Chinese renewable energy industry: Does technological innovation matter?

Abstract

With the rapid increase in China's installed capacity of renewable energy (RE), there has been growing concern regarding the problem of overcapacity in China's RE industry. However, there is ongoing debate regarding the influence of government subsidies (GS) on the RE industry's capacity utilization (CU), and the role of technological innovation in this aspect has been overlooked. This study utilizes panel data from 114 Chinese RE-listed companies spanning from 2011 to 2021, aiming to uncover the impact of GS on the CU of RE. The findings show that GS reduces the CU of RE firms. Specifically, GS has not only facilitated investments in RE but also bolstered enterprises' market share. However, the former effect is stronger, reducing the CU of RE companies. In addition, our findings reveal that when the technological innovation capability of RE companies surpasses a certain threshold, the negative impact is weakened. Finally, for non-state-owned, growth-stage, low R&D subsidy proportion, and western region-based RE firms, the adverse effect of GS on their CU is particularly prominent, but no statistically significant evidence to suggest such an effect for state-owned, non-growth-stage, high R&D subsidy proportion, and non-western region-based RE firms. Accordingly, we present targeted policy recommendations.