Consumer vs producer subsidies for renewable energy: The role of perception efficiency and policy portfolio in a power supply chain

The global transition to renewable energy (RE) hinges on the design of effective and economically efficient policy portfolios. This study develops a Stackelberg game-theoretic model of a power supply chain—comprising a generation company, a retailer, and consumers—to dissect the intricate relationships between subsidy policies, market mechanisms, and consumer behavioral characteristics. We rigorously evaluate three policy scenarios: No Subsidy (N), Subsidized Consumers (C), and Subsidized Generation Companies (G). The model explicitly quantifies subsidy perception efficiency gap between consumers and producers, and it embeds this analysis within an integrated framework combining Renewable Energy Certificate (REC) trading and Renewable Portfolio Standards (RPS). Our findings reveal that the effectiveness of a subsidy is determined not by its target (consumer vs. generation company) but by the recipient's perception efficiency. Subsidies enhance social welfare only when this efficiency surpasses a critical threshold. Furthermore, consumer environmental preferences emerge as a consistently positive driver of green power adoption and social welfare across all scenarios. We also identify a welfare-maximizing threshold for REC prices, whereas overly stringent RPS mandates are shown to be detrimental. These insights provide a robust theoretical foundation for designing coordinated, consumer-aware RE policies that can accelerate the energy transition while optimizing social welfare.