Exploring the substitution within clean energy: Evidence from China's top 14 hydropower provinces

Abstract

This paper quantitatively examines the substitution effects within China's clean energy sector, focusing on the hydropower and new energy generation sectors across the top 14 hydropower-producing provinces, which collectively contribute to over 80 % of the country's total hydropower output. To provide a comprehensive analysis of regions that significantly influence national trends, the study utilizes the Cross-Price Elasticity (CPE) and Morishima Elasticity of Substitution (MES). CPE measures how the quantity demanded of one energy source responds to a change in the price of another, while MES assesses the sensitivity of the ratio between two energy inputs to price changes. A Seasonal Autoregressive Integrated Moving Average (SARIMA) model is employed to forecast energy substitution dynamics, offering robust predictive accuracy. The average MES between clean energy and thermal power is 0.663, indicating a moderate substitution relationship, with the effect more pronounced in summer. Additionally, the mean MES between hydropower and new energy generation is 2.067, reflecting a strong substitution effect between these two clean energy forms. Furthermore, the SARIMA model shows a mean squared error (MSE) as low as 0.0006 in some cases, demonstrating its robust predictive accuracy in forecasting energy substitution dynamics. These results offer empirical support for policies aimed at reducing reliance on thermal power and promoting clean energy development in key provinces.