Can renewable portfolio standard promote renewable energy capacity utilization? Empirical evidence from China

Abstract

As the costs of renewable energy generation decline, the focus of renewable energy policies has shifted from feed-in tariff to renewable portfolio standard (RPS). While existing literature has examined the effects of RPS on the installed capacity, capacity additions, and power generation of renewable energy, it has largely overlooked the impact on renewable energy capacity utilization. This study evaluates the effect of China's RPS on the capacity utilization of renewable energy, as well as the spillover effects of this policy on thermal and hydroelectric power, using a difference-in-differences model. The results indicate that RPS target stringency has a positive effect on the capacity utilization of non-hydro renewable energy in China. Increasing the RPS target stringency by one standard deviation leads to an increase of 130 hours in the average annual operating hours of non-hydro renewable energy power plants, representing a 7% increase relative to the standard deviation of the dependent variable. Heterogeneity analysis reveals that more stringent RPS targets significantly boost wind power capacity utilization while reducing photovoltaic power capacity utilization, with no significant effect on biomass power capacity utilization. Additionally, the RPS policy has spillover effects, increasing thermal power capacity utilization while suppressing hydroelectric power capacity utilization. These findings provide valuable insights for countries implementing RPS policies, enabling them to optimize policy design to enhance the capacity utilization of renewable energy and facilitate the low-carbon transition of their energy systems.