IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v151y2015icp296-305.html
   My bibliography  Save this article

Impact analysis of coal-electricity pricing linkage scheme in China based on stochastic frontier cost function

Author

Listed:
  • Li, Hong-Zhou
  • Tian, Xian-Liang
  • Zou, Tao

Abstract

This study evaluates the feasibility and fairness of 2012 amendment to coal-electricity pricing linkage policy in China. Our empirical design is based on several stochastic frontier cost functions and the results show that the amended pricing linkage scheme is a double-edged sword as follows. On the one hand, it provides incentives for less-efficient (with efficiency less than 90%) power plants to increase their efficiency. One the other hand, it imposes a penalty to highly-efficient power plants (with efficiency more than 90%). And even worse, the higher the efficiency is, the bigger the penalty will be. To make the current coal-electricity pricing linkage scheme more feasible, we suggest the threshold value of 5 instead of 10%, and a group specific threshold value instead of the current one-size-for-all practice.

Suggested Citation

  • Li, Hong-Zhou & Tian, Xian-Liang & Zou, Tao, 2015. "Impact analysis of coal-electricity pricing linkage scheme in China based on stochastic frontier cost function," Applied Energy, Elsevier, vol. 151(C), pages 296-305.
    • Handle: RePEc:eee:appene:v:151:y:2015:i:c:p:296-305
    DOI: 10.1016/j.apenergy.2015.04.073
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S030626191500536X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2015.04.073?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zhang, Vanessa Yanhua & Chen, Yongjun, 2011. "Vertical relationships in China’s electricity industry: The quest for competition?," Utilities Policy, Elsevier, vol. 19(3), pages 142-151.
    2. Kopsakangas-Savolainen, Maria & Svento, Rauli, 2011. "Observed and unobserved heterogeneity in stochastic frontier models: An application to the electricity distribution industry," Energy Economics, Elsevier, vol. 33(2), pages 304-310, March.
    3. Kuosmanen, Timo & Saastamoinen, Antti & Sipiläinen, Timo, 2013. "What is the best practice for benchmark regulation of electricity distribution? Comparison of DEA, SFA and StoNED methods," Energy Policy, Elsevier, vol. 61(C), pages 740-750.
    4. Massimo Filippini & Paola Prioni, 2003. "The influence of ownership on the cost of bus service provision in Switzerland - an empirical illustration," Applied Economics, Taylor & Francis Journals, vol. 35(6), pages 683-690.
    5. Mehdi Farsi & Massimo Filippini & Michael Kuenzle, 2006. "Cost Efficiency in Regional Bus Companies: An Application of Alternative Stochastic Frontier Models," Journal of Transport Economics and Policy, University of Bath, vol. 40(1), pages 95-118, January.
    6. Kuosmanen, Timo, 2012. "Stochastic semi-nonparametric frontier estimation of electricity distribution networks: Application of the StoNED method in the Finnish regulatory model," Energy Economics, Elsevier, vol. 34(6), pages 2189-2199.
    7. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    8. Mehdi Farsi & Massimo Filippini, 2005. "A Benchmarking Analysis of Electricity Distribution Utilities in Switzerland," CEPE Working paper series 05-43, CEPE Center for Energy Policy and Economics, ETH Zurich.
    9. Zhao, Xiaoli & Lyon, Thomas P. & Song, Cui, 2012. "Lurching towards markets for power: China’s electricity policy 1985–2007," Applied Energy, Elsevier, vol. 94(C), pages 148-155.
    10. Ann F. Friedlaender & Clifford Winston & Kung Wang, 1983. "Costs, Technology, and Productivity in the U.S. Automobile Industry," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 1-20, Spring.
    11. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-374, October.
    12. See, Kok Fong & Coelli, Tim, 2012. "An analysis of factors that influence the technical efficiency of Malaysian thermal power plants," Energy Economics, Elsevier, vol. 34(3), pages 677-685.
    13. Olatubi, Williams O. & Dismukes, David E., 2000. "A data envelopment analysis of the levels and determinants of coal-fired electric power generation performance," Utilities Policy, Elsevier, vol. 9(2), pages 47-59, June.
    14. Wang, Yi-Shu & Xie, Bai-Chen & Shang, Li-Feng & Li, Wen-Hua, 2013. "Measures to improve the performance of China’s thermal power industry in view of cost efficiency," Applied Energy, Elsevier, vol. 112(C), pages 1078-1086.
    15. Mehdi Farsi & Massimo Filippini & William Greene, 2006. "Application Of Panel Data Models In Benchmarking Analysis Of The Electricity Distribution Sector," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(3), pages 271-290, September.
    16. Lam, Pun-Lee & Shiu, Alice, 2001. "A data envelopment analysis of the efficiency of China's thermal power generation," Utilities Policy, Elsevier, vol. 10(2), pages 75-83, June.
    17. Farsi, Mehdi & Filippini, Massimo & Kuenzle, Michael, 2007. "Cost efficiency in the Swiss gas distribution sector," Energy Economics, Elsevier, vol. 29(1), pages 64-78, January.
    18. Chang, Dong-Shang & Chen, Yi-Tui & Chen, Wen-Den, 2009. "The exogenous factors affecting the cost efficiency of power generation," Energy Policy, Elsevier, vol. 37(12), pages 5540-5545, December.
    19. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    20. Farsi, Mehdi & Filippini, Massimo, 2009. "An analysis of cost efficiency in Swiss multi-utilities," Energy Economics, Elsevier, vol. 31(2), pages 306-315, March.
    21. Greene, William, 2005. "Reconsidering heterogeneity in panel data estimators of the stochastic frontier model," Journal of Econometrics, Elsevier, vol. 126(2), pages 269-303, June.
    22. Pun-Lee Lam & Alice Shiu, 2004. "Efficiency and Productivity of China's Thermal Power Generation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 24(1), pages 73-93, February.
    23. Willam Greene, 2005. "Fixed and Random Effects in Stochastic Frontier Models," Journal of Productivity Analysis, Springer, vol. 23(1), pages 7-32, January.
    24. Supawat Rungsuriyawiboon & Tim Coelli, 2004. "Regulatory Reform and Economic Performance in US Electricity Generation," CEPA Working Papers Series WP062004, School of Economics, University of Queensland, Australia.
    25. Vaninsky, Alexander, 2006. "Efficiency of electric power generation in the United States: Analysis and forecast based on data envelopment analysis," Energy Economics, Elsevier, vol. 28(3), pages 326-338, May.
    26. Pollitt, Michael, 2005. "The role of efficiency estimates in regulatory price reviews: Ofgem's approach to benchmarking electricity networks," Utilities Policy, Elsevier, vol. 13(4), pages 279-288, December.
    27. Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
    28. Kopsakangas-Savolainen, Maria & Svento, Rauli, 2010. "Comparing welfare effects of different regulation schemes: An application to the electricity distribution industry," Energy Policy, Elsevier, vol. 38(11), pages 7370-7377, November.
    29. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    30. Kopsakangas-Savolainen, Maria & Svento, Rauli, 2008. "Estimation of cost-effectiveness of the Finnish electricity distribution utilities," Energy Economics, Elsevier, vol. 30(2), pages 212-229, March.
    31. Filippini, Massimo & Hrovatin, Nevenka & Zoric, Jelena, 2004. "Efficiency and regulation of the Slovenian electricity distribution companies," Energy Policy, Elsevier, vol. 32(3), pages 335-344, February.
    32. Barros, Carlos Pestana & Peypoch, Nicolas, 2008. "Technical efficiency of thermoelectric power plants," Energy Economics, Elsevier, vol. 30(6), pages 3118-3127, November.
    33. Arocena, Pablo, 2008. "Cost and quality gains from diversification and vertical integration in the electricity industry: A DEA approach," Energy Economics, Elsevier, vol. 30(1), pages 39-58, January.
    34. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
    35. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhigang Zhu & Xuping Zhang & Yujia Wang & Xiang Chen, 2021. "Energy Cost Performance of Thermal Power Industry in China Considering Regional Heterogeneity: A Meta-Frontier Cost Malmquist Productivity Decomposition Approach," Sustainability, MDPI, vol. 13(12), pages 1-19, June.
    2. Song, Malin & Wang, Jianlin, 2018. "Environmental efficiency evaluation of thermal power generation in China based on a slack-based endogenous directional distance function model," Energy, Elsevier, vol. 161(C), pages 325-336.
    3. Li, Hong-Zhou & Kopsakangas-Savolainen, Maria & Xiao, Xing-Zhi & Lau, Sim-Yee, 2017. "Have regulatory reforms improved the efficiency levels of the Japanese electricity distribution sector? A cost metafrontier-based analysis," Energy Policy, Elsevier, vol. 108(C), pages 606-616.
    4. Wang, Xiaofei & Liu, Chuangeng & Chen, Shaojie & Chen, Lei & Li, Ke & Liu, Na, 2020. "Impact of coal sector’s de-capacity policy on coal price," Applied Energy, Elsevier, vol. 265(C).
    5. Li, Junjie & Zhang, Yueling & Yang, Yanli & Zhang, Xiaomei & Zheng, Yonghong & Qian, Qi & Tian, Yajun & Xie, Kechang, 2022. "Comparative resource-environment-economy assessment of coal- and oil-based aromatics production," Resources Policy, Elsevier, vol. 77(C).
    6. Lijing Zhang & Shuke Fu & Jiali Tian & Jiachao Peng, 2022. "A Review of Energy Industry Chain and Energy Supply Chain," Energies, MDPI, vol. 15(23), pages 1-21, December.
    7. Xu, Bin & Lin, Boqiang, 2016. "Assessing CO2 emissions in China’s iron and steel industry: A dynamic vector autoregression model," Applied Energy, Elsevier, vol. 161(C), pages 375-386.
    8. Fan, Xinghua & Wang, Li & Li, Shasha, 2016. "Predicting chaotic coal prices using a multi-layer perceptron network model," Resources Policy, Elsevier, vol. 50(C), pages 86-92.
    9. Peng Ou & Ruting Huang & Xin Yao, 2016. "Economic Impacts of Power Shortage," Sustainability, MDPI, vol. 8(7), pages 1-21, July.
    10. Cui, Herui & Wei, Pengbang, 2017. "Analysis of thermal coal pricing and the coal price distortion in China from the perspective of market forces," Energy Policy, Elsevier, vol. 106(C), pages 148-154.
    11. Guangming Rao & Bin Su & Jinlian Li & Yong Wang & Yanhua Zhou & Zhaolin Wang, 2019. "Carbon Sequestration Total Factor Productivity Growth and Decomposition: A Case of the Yangtze River Economic Belt of China," Sustainability, MDPI, vol. 11(23), pages 1-28, November.
    12. Li, Zheng-Zheng & Su, Chi-Wei & Chang, Tsangyao & Lobonţ, Oana-Ramona, 2022. "Policy-driven or market-driven? Evidence from steam coal price bubbles in China," Resources Policy, Elsevier, vol. 78(C).
    13. Wang, Chang'an & Wu, Song & Lv, Qiang & Liu, Xuan & Chen, Wufeng & Che, Defu, 2017. "Study on correlations of coal chemical properties based on database of real-time data," Applied Energy, Elsevier, vol. 204(C), pages 1115-1123.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Hong-Zhou & Kopsakangas-Savolainen, Maria & Xiao, Xing-Zhi & Tian, Zhen-Zhen & Yang, Xiao-Yuan & Wang, Jian-Lin, 2016. "Cost efficiency of electric grid utilities in China: A comparison of estimates from SFA–MLE, SFA–Bayes and StoNED–CNLS," Energy Economics, Elsevier, vol. 55(C), pages 272-283.
    2. Farsi, Mehdi & Filippini, Massimo, 2009. "An analysis of cost efficiency in Swiss multi-utilities," Energy Economics, Elsevier, vol. 31(2), pages 306-315, March.
    3. Chen, Zhongfei & Barros, Carlos Pestana & Borges, Maria Rosa, 2015. "A Bayesian stochastic frontier analysis of Chinese fossil-fuel electricity generation companies," Energy Economics, Elsevier, vol. 48(C), pages 136-144.
    4. Xie, Bai-Chen & Zhang, Zhen-Jiang & Anaya, Karim L., 2021. "Has the unbundling reform improved the service efficiency of China's power grid firms?," Energy Economics, Elsevier, vol. 95(C).
    5. Lundgren, Tommy & Marklund, Per-Olov & Zhang, Shanshan, 2016. "Industrial energy demand and energy efficiency – Evidence from Sweden," Resource and Energy Economics, Elsevier, vol. 43(C), pages 130-152.
    6. Li, Hong-Zhou & Kopsakangas-Savolainen, Maria & Xiao, Xing-Zhi & Lau, Sim-Yee, 2017. "Have regulatory reforms improved the efficiency levels of the Japanese electricity distribution sector? A cost metafrontier-based analysis," Energy Policy, Elsevier, vol. 108(C), pages 606-616.
    7. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Benchmarking and Regulation in the Electricity Distribution Sector," CEPE Working paper series 07-54, CEPE Center for Energy Policy and Economics, ETH Zurich.
    8. Ayadi, Ahmed & Hammami, Sami, 2015. "An analysis of the performance of public bus transport in Tunisian cities," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 51-60.
    9. Mehdi Farsi & Massimo Filippini & William Greene, 2005. "Efficiency Measurement in Network Industries: Application to the Swiss Railway Companies," Journal of Regulatory Economics, Springer, vol. 28(1), pages 69-90, July.
    10. Barros, Carlos Pestana & Chen, Zhongfei & Managi, Shunsuke & Antunes, Olinda Sequeira, 2013. "Examining the cost efficiency of Chinese hydroelectric companies using a finite mixture model," Energy Economics, Elsevier, vol. 36(C), pages 511-517.
    11. Roberto Colombi & Gianmaria Martini & Giorgio Vittadini, 2017. "Determinants of transient and persistent hospital efficiency: The case of Italy," Health Economics, John Wiley & Sons, Ltd., vol. 26(S2), pages 5-22, September.
    12. Subal C. Kumbhakar & Gudbrand Lien, 2017. "Yardstick Regulation of Electricity Distribution Disentangling Short-run and Long-run Inefficiencies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    13. Sickles, Robin C. & Hao, Jiaqi & Shang, Chenjun, 2015. "Panel Data and Productivity Measurement," Working Papers 15-018, Rice University, Department of Economics.
    14. Kopsakangas-Savolainen, Maria & Svento, Rauli, 2011. "Observed and unobserved heterogeneity in stochastic frontier models: An application to the electricity distribution industry," Energy Economics, Elsevier, vol. 33(2), pages 304-310, March.
    15. Sickles, Robin C. & Song, Wonho & Zelenyuk, Valentin, 2018. "Econometric Analysis of Productivity: Theory and Implementation in R," Working Papers 18-008, Rice University, Department of Economics.
    16. Mehdi Farsi & Massimo Filippini & William Greene, 2006. "Application Of Panel Data Models In Benchmarking Analysis Of The Electricity Distribution Sector," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(3), pages 271-290, September.
    17. Martini, Gianmaria & Scotti, Davide & Viola, Domenico & Vittadini, Giorgio, 2020. "Persistent and temporary inefficiency in airport cost function: An application to Italy," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 999-1019.
    18. Belotti, Federico & Ilardi, Giuseppe, 2018. "Consistent inference in fixed-effects stochastic frontier models," Journal of Econometrics, Elsevier, vol. 202(2), pages 161-177.
    19. Hailu, Kidanemariam Berhe & Tanaka, Makoto, 2015. "A “true” random effects stochastic frontier analysis for technical efficiency and heterogeneity: Evidence from manufacturing firms in Ethiopia," Economic Modelling, Elsevier, vol. 50(C), pages 179-192.
    20. Mehdi Farsi & Massimo Filippini & Michael Kuenzle, 2006. "Cost Efficiency in Regional Bus Companies: An Application of Alternative Stochastic Frontier Models," Journal of Transport Economics and Policy, University of Bath, vol. 40(1), pages 95-118, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:151:y:2015:i:c:p:296-305. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.