Wind-power investment under bank financing: output subsidy mode vs interest rate subsidy mode

Abstract

This study addresses the issue of power-generation companies using bank financing to invest in wind power. It considers the amount of wind-power investment and the power-generation effort of power companies. The study builds three financing modes—without subsidy, with output subsidy, and with interest rate subsidy—and compares the equilibrium solutions of the different subsidy modes. The findings show that: (1) When the subsidy per unit of wind-power output is low (high), the interest rate (output) subsidy mode provides more favourable conditions for supply chain members to increase power-generation effort and wind-resource investment. (2) When the reputation value coefficient is low (high), the output (interest rate) subsidy mode is favourable for achieving a win-win situation for both the economy and the environment. (3) Numerical analysis further proves that a company’s power-generation effort, wind-resource investment, total output, and profits decrease as the interest rate increases. Therefore, to maximise financing benefits, power companies should opt for the interest rate subsidy mode when their wind power projects operate in a high-reputation environment, and switch to the output subsidy mode in a low-reputation environment. For policymakers, the choice between interest rate and output subsidies should also be made prudently based on the project’s reputation environment, so as to better incentivize power companies and achieve a win-win outcome for both the economy and the environment. Furthermore, policymakers can proactively enhance the reputation value of wind power through publicity campaigns and encourage banks to offer preferential green credit interest rates, thereby strengthening the overall effectiveness of the interest rate subsidy policy.