A large amount of idle capacity under rapid expansion: Policy analysis on the dilemma of wind power utilization in China

Wind power installation in China has increased rapidly since 2004. However, wind power usage remains relatively low resulting in a lot of idle capacity beginning in 2007. In this paper, we determine the main framework of China's current wind power policies and illustrate how these policies led to the rapid installation expansion accompanied by large idle capacity. Building on this, we explore how to alleviate the high installation low wind power usage conflict in China. We establish optimal models to (i) analyze wind power and power grid company behavior; (ii) demonstrate the impact of China's current policies on power and grid companies; and (iii) clarify the causes and mechanisms resulting in high growth and low wind power capacity usage. Our analysis shows that the incentive incompatibility of current policies, which enticed power companies to pursue installation expansion regardless of quality while inhibiting grid companies from improving connectivity, transmission and scheduling technology, is the primary cause for such large-scale idle capacity. The results of our study suggest that the fundamental way to scale up wind power utilization is to enhance policy incentive compatibility, which mainly includes (i) distributing revenues and diversifying risk fairly between power and grid companies; and (ii) motivating power companies to address demand fluctuation actively.