A game-theory analysis of the subsidy withdrawal policy for China's photovoltaic power generation industry

Over the past decade, the feed-in-tariff (FIT) subsidy policy of China has driven rapid growth in the photovoltaic power generation (PPG) industry. China now boasts the largest installed capacity of PPG around the world. However, the policy-driven expansion of the PPG industry has not brought about a simultaneous improvement in quality. PPG costs remain high and it is difficult to sustain PPG competitiveness. Therefore, it is imperative to gradually withdraw from the implementation of photovoltaic subsidies. Using a game theory approach, this study investigates the impact of subsidy exit policy on China's PPG industry. The results show that stimulating research and development (R&D) can be difficult under current uncertain subsidy withdrawal plan. The government should announce the plan of subsidy reduction with clear adjustment as well as corresponding effective dates. In addition, under the condition of government-controlled prices, the social welfare of the monopoly market is higher than that in the competitive market. In order to achieve the same technological progress and target output, the total cost (including enterprise cost and government expenditure) in competitive market is higher than that in monopoly market, which is caused by repeated R&D investment and technical cost. Technical cooperation could lower costs and increase profits, and is therefore recommended.

Automated summary

China's feed-in-tariff policy has driven rapid growth in the photovoltaic power generation industry, but the quality has not improved alongside the expansion. High costs make it difficult to sustain competitiveness, leading to the need for a gradual withdrawal of subsidies. Uncertain subsidy exit policies may hinder R&D, and the government should provide a clear plan for subsidy reduction. In a monopoly market with government-controlled prices, social welfare is higher and total costs are lower compared to a competitive market, which may benefit from technical cooperation to lower costs and increase profits.