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.