Competition or social priority? The subsidy strategies for the power sector amid power crisis

Abstract

Frequent power crises disrupt the equilibrium of global economic systems, underscoring the critical need for effective sectoral subsidy policies to address energy shortages. Taking China’s power crisis as an exogenous shock, this study investigates the impact of government subsidies during the crisis based on panel data from Chinese power enterprises from 2003 to 2007. Additionally, the optimal subsidy strategies are explored through the Bertrand competition model. The findings confirmed that government subsidies can effectively mitigate the adverse effects of power crisis on power enterprises and enhance total factor productivity (TFP). An increase in output scale and market power significantly promotes the TFP. Furthermore, an optimal implementation space exists that is defined by the degree of market competition. Deviating from this range leads to a divergence between the actual outcomes of the subsidy policy and the intended objectives set by policymakers. This study provides a systematic framework for optimizing subsidy strategies, offering valuable insights for other countries to address energy crises and broader disruptions in energy systems.