Applying stochastic frontier analysis to measure the operating efficiency of solar energy companies in China and Taiwan

Abstract

Climate change and the depletion of fossil fuels are the biggest challenges that humanity faces today. Solar energy can be used to mitigate climate change and reduce the demand for fossil fuels. Therefore, governments in different countries have actively developed the solar energy industry as a renewable energy industry. Although China and Taiwan respectively occupy first and second place in the current global output of solar energy products, they face serious pressure in the international market. To measure the operating efficiency of solar energy companies in China and Taiwan, this study combines the Shephard distance function and stochastic frontier analysis incorporating environmental variables. The empirical results show that: (1) China has better labour efficiency, (2) Taiwan has better operating cost efficiency, (3) both regions have extremely poor expenditure efficiency on R&D and the R&D expenditure rate is low, (4) the larger a company’s size, the higher the labour efficiency and cost efficiency, and (5) the prices of raw materials have a direct impact on operating costs. It is hoped that the results of this research can provide recommendations for and promote changes in the operating and management strategies of the solar energy industry, improving its operating efficiency.