IDEAS home Printed from https://ideas.repec.org/a/nat/natene/v8y2023i7d10.1038_s41560-023-01278-9.html
   My bibliography  Save this article

Assessing the roles of efficient market versus regulatory capture in China’s power market reform

Author

Listed:
  • Chenxi Xiang

    (Renmin University of China)

  • Xinye Zheng

    (Renmin University of China)

  • Feng Song

    (Renmin University of China)

  • Jiang Lin

    (Lawrence Berkeley National Laboratory
    University of California Berkeley)

  • Zhigao Jiang

    (Zhineng Consultant Company)

Abstract

China began implementing market-based economic dispatch through power sector reform in 2015, but the reform has encountered some political and economic challenges. Here we identify the reform’s efficiency changes and explore the influences of market-driven and politically driven mechanisms behind them. We do this through a cost-minimizing dispatch model integrating high-frequency data in southern China. We find that the dispatch transition improves the overall efficiency, but regulatory capture in provincial markets limits its full potential. The preference for local enterprises over central state-owned enterprises (SOEs) by local governments, in the form of allocated generation quotas, demonstrates the political challenge for market reform. The allocated generation quota protects small coal-fired and natural gas generators owned by local SOEs, lessening their motivation to improve generation efficiency, even after the reform. As a result, nearly half of the potential carbon dioxide emissions reduction and social welfare gains through market reform is not realized.

Suggested Citation

  • Chenxi Xiang & Xinye Zheng & Feng Song & Jiang Lin & Zhigao Jiang, 2023. "Assessing the roles of efficient market versus regulatory capture in China’s power market reform," Nature Energy, Nature, vol. 8(7), pages 747-757, July.
    • Handle: RePEc:nat:natene:v:8:y:2023:i:7:d:10.1038_s41560-023-01278-9
    DOI: 10.1038/s41560-023-01278-9
    as

    Download full text from publisher

    File URL: https://www.nature.com/articles/s41560-023-01278-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1038/s41560-023-01278-9?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. Pollitt, M. & Yang, C-H. & Chen, H., 2017. "Reforming the Chinese Electricity Supply Sector: Lessons from International Experience," Cambridge Working Papers in Economics 1713, Faculty of Economics, University of Cambridge.
    2. Li, Jianglong & Ho, Mun Sing, 2022. "Indirect cost of renewable energy: Insights from dispatching," Energy Economics, Elsevier, vol. 105(C).
    3. Yu, Fanxian & Chen, Jining & Sun, Fu & Zeng, Siyu & Wang, Can, 2011. "Trend of technology innovation in China's coal-fired electricity industry under resource and environmental constraints," Energy Policy, Elsevier, vol. 39(3), pages 1586-1599, March.
    4. Hei Sing (Ron) Chan & Maureen L. Cropper & Kabir Malik, 2014. "Why Are Power Plants in India Less Efficient Than Power Plants in the United States?," American Economic Review, American Economic Association, vol. 104(5), pages 586-590, May.
    5. Steve Cicala, 2015. "When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation," American Economic Review, American Economic Association, vol. 105(1), pages 411-444, January.
    6. Hao Chen, Chi Kong Chyong, Zhifu Mi, and Yi-Ming Wei, 2020. "Reforming the Operation Mechanism of Chinese Electricity System: Benefits, Challenges and Possible Solutions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 219-246.
    7. Lei Duan & Robert Petroski & Lowell Wood & Ken Caldeira, 2022. "Stylized least-cost analysis of flexible nuclear power in deeply decarbonized electricity systems considering wind and solar resources worldwide," Nature Energy, Nature, vol. 7(3), pages 260-269, March.
    8. Bugge, Jørgen & Kjær, Sven & Blum, Rudolph, 2006. "High-efficiency coal-fired power plants development and perspectives," Energy, Elsevier, vol. 31(10), pages 1437-1445.
    9. Yuanan Hu & Hefa Cheng, 2017. "Displacement efficiency of alternative energy and trans-provincial imported electricity in China," Nature Communications, Nature, vol. 8(1), pages 1-9, April.
    10. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2014. "Challenges of working with the Chinese NBS firm-level data," China Economic Review, Elsevier, vol. 30(C), pages 339-352.
    11. Chen, Hao & Cui, Jian & Song, Feng & Jiang, Zhigao, 2022. "Evaluating the impacts of reforming and integrating China's electricity sector," Energy Economics, Elsevier, vol. 108(C).
    12. Nikolakakis, Thomas & Chattopadhyay, Deb & Bazilian, Morgan, 2017. "A review of renewable investment and power system operational issues in Bangladesh," Renewable and Sustainable Energy Reviews, Elsevier, vol. 68(P1), pages 650-658.
    13. Bistline, John E., 2015. "Electric sector capacity planning under uncertainty: Climate policy and natural gas in the US," Energy Economics, Elsevier, vol. 51(C), pages 236-251.
    14. Wei, Yi-Ming & Chen, Hao & Chyong, Chi Kong & Kang, Jia-Ning & Liao, Hua & Tang, Bao-Jun, 2018. "Economic dispatch savings in the coal-fired power sector: An empirical study of China," Energy Economics, Elsevier, vol. 74(C), pages 330-342.
    15. Zhenyu Zhuo & Ershun Du & Ning Zhang & Chris P. Nielsen & Xi Lu & Jinyu Xiao & Jiawei Wu & Chongqing Kang, 2022. "Cost increase in the electricity supply to achieve carbon neutrality in China," Nature Communications, Nature, vol. 13(1), pages 1-13, December.
    16. Kahrl, Fredrich & Williams, James H. & Hu, Junfeng, 2013. "The political economy of electricity dispatch reform in China," Energy Policy, Elsevier, vol. 53(C), pages 361-369.
    17. Lin, Jiang & Kahrl, Fredrich & Yuan, Jiahai & Chen, Qixin & Liu, Xu, 2019. "Economic and carbon emission impacts of electricity market transition in China: A case study of Guangdong Province," Applied Energy, Elsevier, vol. 238(C), pages 1093-1107.
    18. Zhong, Haiwang & Xia, Qing & Chen, Yuguo & Kang, Chongqing, 2015. "Energy-saving generation dispatch toward a sustainable electric power industry in China," Energy Policy, Elsevier, vol. 83(C), pages 14-25.
    Full references (including those not matched with items on IDEAS)

    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. Chen, Hao & Cui, Jian & Song, Feng & Jiang, Zhigao, 2022. "Evaluating the impacts of reforming and integrating China's electricity sector," Energy Economics, Elsevier, vol. 108(C).
    2. Wei, Yi-Ming & Chen, Hao & Chyong, Chi Kong & Kang, Jia-Ning & Liao, Hua & Tang, Bao-Jun, 2018. "Economic dispatch savings in the coal-fired power sector: An empirical study of China," Energy Economics, Elsevier, vol. 74(C), pages 330-342.
    3. Hao Chen & Chi Kong Chyong & Jia-Ning Kang & Yi-Ming Wei, 2018. "Economic dispatch in the electricity sector in China: potential benefits and challenges ahead," Working Papers EPRG 1819, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    4. Ding, Qingguo & Wang, Jianxiao & Zhang, Bing & Yu, Yang, 2023. "Economic burden of China's fairness regulations on power generation sector," Energy, Elsevier, vol. 278(C).
    5. Chen, Hao & Geng, Hao-Peng & Ling, Hui-Ting & Peng, Song & Li, Nan & Yu, Shiwei & Wei, Yi-Ming, 2020. "Modeling the coal-to-gas switch potentials in the power sector: A case study of China," Energy, Elsevier, vol. 192(C).
    6. Cui, Jian & Song, Feng & Jiang, Zhigao, 2023. "Efficiency vs. equity as China's national carbon market meets provincial electricity markets," China Economic Review, Elsevier, vol. 78(C).
    7. Zeng, Ming & Yang, Yongqi & Wang, Lihua & Sun, Jinghui, 2016. "The power industry reform in China 2015: Policies, evaluations and solutions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 57(C), pages 94-110.
    8. Luo, Qian & Garcia-Menendez, Fernando & Yang, Haozhe & Deshmukh, Ranjit & He, Gang & Lin, Jiang & Johnson, Jeremiah X, 2023. "The Health and Climate Benefits of Economic Dispatch in China’s Power System," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2vq7v90q, Department of Agricultural & Resource Economics, UC Berkeley.
    9. Bai-Chen Xie & Jun Xu & Michael G Pollitt, 2020. "What effect has the 2015 power market reform had on power prices in China? Evidence from Guangdong and Zhejiang," Working Papers EPRG2010, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    10. Song, Feng & Bi, De & Wei, Chu, 2019. "Market segmentation and wind curtailment: An empirical analysis," Energy Policy, Elsevier, vol. 132(C), pages 831-838.
    11. Michael Pollitt, 2021. "Measuring the Impact of Electricity Market Reform in a Chinese Context," Working Papers EPRG2111, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    12. Li, Mingquan & Gao, Huiwen & Abdulla, Ahmed & Shan, Rui & Gao, Shuo, 2022. "Combined effects of carbon pricing and power market reform on CO2 emissions reduction in China's electricity sector," Energy, Elsevier, vol. 257(C).
    13. Xia, Fang & Lu, Xi & Song, Feng, 2020. "The role of feed-in tariff in the curtailment of wind power in China," Energy Economics, Elsevier, vol. 86(C).
    14. Wang, Peng-Tao & Wei, Yi-Ming & Yang, Bo & Li, Jia-Quan & Kang, Jia-Ning & Liu, Lan-Cui & Yu, Bi-Ying & Hou, Yun-Bing & Zhang, Xian, 2020. "Carbon capture and storage in China’s power sector: Optimal planning under the 2 °C constraint," Applied Energy, Elsevier, vol. 263(C).
    15. Stefan Seifert, 2015. "Measuring Productivity When Technologies Are Heterogeneous: A Semi-Parametric Approach for Electricity Generation," Discussion Papers of DIW Berlin 1526, DIW Berlin, German Institute for Economic Research.
    16. Zhang, Dongyang, 2021. "Marketization, environmental regulation, and eco-friendly productivity: A Malmquist–Luenberger index for pollution emissions of large Chinese firms," Journal of Asian Economics, Elsevier, vol. 76(C).
    17. Qin, Quande & Liu, Yuan & Huang, Jia-Ping, 2020. "A cooperative game analysis for the allocation of carbon emissions reduction responsibility in China's power industry," Energy Economics, Elsevier, vol. 92(C).
    18. Zheng, Xuemei & Menezes, Flavio & Nepal, Rabindra, 2021. "In between the state and the market: An empirical assessment of the early achievements of China's 2015 electricity reform," Energy Economics, Elsevier, vol. 93(C).
    19. Tomas Baležentis & Dalia Štreimikienė, 2019. "Sustainability in the Electricity Sector through Advanced Technologies: Energy Mix Transition and Smart Grid Technology in China," Energies, MDPI, vol. 12(6), pages 1-21, March.
    20. Jin, Jingliang & Wen, Qinglan & Zhao, Liya & Zhou, Chaoyang & Guo, Xiaojun, 2023. "Measuring environmental performance of power dispatch influenced by low-carbon approaches," Renewable Energy, Elsevier, vol. 209(C), pages 325-339.

    More about this item

    Statistics

    Access and download statistics

    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:nat:natene:v:8:y:2023:i:7:d:10.1038_s41560-023-01278-9. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.nature.com .

    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.