Improving the green service efficiency of China's grid utilities: Do market-based renewable energy policies matter?

Market-based policies have emerged to facilitate renewable energy integration, but obstacles remain in optimizing these policies, particularly in incentivizing grid utilities to support renewable energy development within a comprehensive framework. To address this issue, this study develops a green service efficiency framework that incorporates renewable energy integration and service quality into efficiency evaluation, thereby extending traditional productivity analysis in the grid sector. We then employ stochastic frontier analysis with data from China's grid sector to investigate how market-based renewable energy policies alter the trade-offs between inputs and outputs within this framework. The findings show that the adoption of market-based policies leads to a significant improvement in the green service efficiency of grid utilities. However, the impact differs depending on the policy type, renewable portfolio standards outperform electricity spot market reform, showing a more significant reduction in inefficiency during the study period. Renewable portfolio standards operate through externally regulated market mechanisms, while electricity spot market reforms depend solely on internal market forces. Apart from these external policy instruments, the grid efficiency is also affected by organizational structure, geographical location, and resource endowment. These insights offer valuable guidance for policymakers, emphasizing the importance of reinforcing policies and addressing firm-level heterogeneities to help grid utilities tackle energy-transition challenges.