Can a Dynamic Reward–Penalty Mechanism Help the Implementation of Renewable Portfolio Standards under Information Asymmetry?

Abstract

To further promote the low-carbon and sustainable development of China’s power industry, the Chinese government is vigorously introducing competition into power sales market. Simultaneously, On November 15, 2018, the National Development and Reform Commission issued the “Notice on Implementing the Renewable Portfolio Standards (Draft)” to propose the implementation of power sales side Renewable Portfolio Standards (RPS), which cannot be realized without an effective government regulation mechanism. However, information asymmetry and the limited rationality of the regulatory agencies and private power sales companies in the regulation process make the regulatory effect uncertain to the detriment of a sustainable regulation of the power industry. Thus, it is necessary to optimize the regulation mechanism of the RPS policy in China. We considered the competitive relationship between integrated power sales companies and independent power sales companies, and established an evolutionary game model based on a limited rationality. We also analyzed the implementation effects of the static reward penalty mechanism and dynamic reward penalty mechanism, respectively. The system dynamics (SD) simulation results showed that under the static reward penalty mechanism, there is no evolutionary stable equilibrium solution, and there will be volatility that exists in the evolution process. However, the dynamic reward penalty mechanism can effectively solve these problems. What is more, our results implied that governments should formulate appropriate RPS quotas, improve the green certificate trading mechanism, and take into account the market size of power sales while implementing RPS policy.

Green Certificates Research: Bibliometric Assessment of Current State and Future Directions

“…Hui et al [152] and Zhao and Zhou [153] analyze market behavior, focusing on the strategic actions of market participants and the effectiveness of renewable portfolio standards in China. Zhou et al [154], Song et al [155], and Xin [156] extend this by examining demand-side incentives and market efficiencies within China's tradable green certificate framework. Irfan [157] provides an Indian perspective, focusing on the market integration between electricity and renewable energy certificates.…”

Optimal Decision-Making of Trans-Provincial Electricity Market Subjects with Risks under Renewable Portfolio Standards

“…Some in-depth research has been conducted on the reward and punishment mechanism. Xin [26] analyzed the effects of the static and dynamic reward and punishment mechanisms on RPS policy implementation. Meanwhile, Zhao et al [27] and Zuo et al [28] analyzed the effect of unit fines on electricity market subjects.…”