Subsidy policy discussion on the hydroelectric power substitution for scattered coal consumption: A case study of Sichuan Province

Highlights: • Quantitative relationship between electric substitution and net profit over investment. • Scenario analysis on electricity price and facility investment. • Subsidy policy discussion on the optimal portfolio of four industries. -- Abstract: Scattered coal consumption in China has resulted in severe environmental problems in recent years. In the meantime, the rapid increasing capacity of renewable energy has exceeded the demand and therefore leads to idle capacity problem. In this situation, electric power substitution for scattered coal (EPSSC) has become a good choice in meeting this challenge. However, due to high cost for facility replacement and operation, most of the scattered coal users are not willing to adopt electric power facilities without policy subsidies. In this study, the policies of electricity price subsidy (EPS) and facility investment subsidy (FIS) are evaluated as effective methods to promote the willingness of different industries to implement EPSSC. Firstly, based on the principal of net profit-on-investment rate method, a model is established to describe the quantitative relationship between the amount of electric power substitution and the ratio of net profit over investment. Then, a case study of Sichuan Province is performed to discuss the effect of subsidy policies on the potential of EPSSC in four industries, including coal-fired boiler, self-generation coal-fired plant, coal-fired flue-cured tobacco plant and coal-fired building material kiln. Next, an optimization model combined with scenario analysis is proposed to provide the optimum portfolios of different substitution industries under a specific substitution target under different subsidy policies. The results indicate that, electricity price subsidy given to self-generation power plant is more cost-effective, while facility investment subsidy given to electric boiler and electric flue-cured tobacco plant is more cost-effective than the other industries. When the electric power substitution target is higher than 25%, the economic benefit of facility investment subsidy is superior to electricity price subsidy. If both EPS and FIS are implemented at the same time, the subsidy cost will be further reduced.