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

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  • 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
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    2. 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.
    3. 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.
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