The impact of subsidies on overcapacity: A comparison of wind and solar energy companies in China

• A threshold test is employed to analyze the impacts of subsidies on overcapacity.
• Subsidies for solar energy companies should not exceed the threshold value.
• Increasing subsidies for wind energy companies help address the overcapacity risks.

Determining the level of subsidy is an important measure in addressing overcapacity in Chinese renewable energy enterprises. In this article, we employ a threshold regression model to analyze the impacts of government subsidies on the overcapacity of wind and solar energy companies. Our findings indicate the separate subsidy thresholds for solar and wind energy companies. The results reveal that even where the subsidy falls into a relatively effective interval, it will still intensify the risk of overcapacity in solar energy companies, but can help address overcapacity in the wind energy companies. The paper concludes that the level of subsidies should be unique for each industry, and suggests a prudent reform of the subsidy policy for the solar energy enterprises.