A solution to energy transition paradox: optimal subsidy policy for minimizing the carbon emissions from future hybrid electricity system with hydropower and variable renewables.

The low-cost wind and solar energy may reduce the investments in hydropower and thus increase the share of fossil energy and finally increase the carbon emissions, leading to an "Energy Transition Paradox" [1]. To solve this problem, this study proposes to use subsidies to reconcile the conflicts involved in the capacity planning of hydropower and VRE, which has seldom been addressed in the shift to a low-carbon electricity system. The electricity system in Hubei Province, China is selected as a case study, where we examine the effects of different scenarios of fixed-subsidies, in addition to the market-clearing price, on renewable power generation. First, we estimate the long-term electricity prices based on the cost of marginal units. Next, we design several representative subsidy scenarios and determine the net present values and investments for increasing both hydropower and VRE capacity under these scenarios. Finally, the optimal or most effective subsidy scenario is identified by evaluating the carbon emissions and power generations. Results indicate that, 50% of the subsidy originally allocated to variable renewables should be re-allocated to hydropower to reduce the total carbon emissions. This means that a higher proportion of subsidies should be allocated to the hydropower rather than all subsidies are used to support the VRE alone. This study not only provides an effective economic policy to resolve the energy transition paradox but also shows the potential of enhancing the synergy between different renewable energies.