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Does environmental heterogeneity affect the productive efficiency of grid utilities in China?

Author

Listed:
  • Xiao-Yan Liu

    (College of Management and Economics, Tianjin University, Tianjin, China)

  • Li-Qiu Liu

    (College of Management and Economics, Tianjin University, Tianjin, China)

  • Bai-Chen Xie

    (College of Management and Economics, Tianjin University, Tianjin, China - Energy Policy Research Group (EPRG), Judge Business School, University of Cambridge)

  • Michael G. Pollitt

    (Energy Policy Research Group (EPRG), Judge Business School, University of Cambridge)

Abstract

China’s electricity industry has experienced a reform whereby the generation sector is being opened up to competition but the transmission and distribution sectors are still regulated. Efficiency and benchmarking analyses are widely used for improving the performance of regulated segments, and the impact on efficiency of observable environmental factors, together with unobservable characteristics, has gained increasing attention in recent years. This study uses alternative stochastic frontier models combined with input distance functions to study the productive efficiency of 29 grid firms of China over the period 1993–2014 and investigates the effect of observed environmental factors and unobserved heterogeneity. The results indicate that efficiency is sensitive to model specification and illustrates the presence of observed and unobserved heterogeneity. The number of customers, power delivered and network length are demonstrated to have positive impacts on the utilities’ efficiency while adverse environmental conditions harm the operation of grid utilities, but policy regulations may offset the negative impact. Finally, we suggest that there is room for efficiency improvement in the distribution grid, which could be encouraged by incentive regulation, even taking due account of environmental heterogeneity.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Xiao-Yan Liu & Li-Qiu Liu & Bai-Chen Xie & Michael G. Pollitt, 2018. "Does environmental heterogeneity affect the productive efficiency of grid utilities in China?," Working Papers EPRG 1820, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1820
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    2. Chen, Hao & Chen, Xi & Niu, Jinye & Xiang, Mengyu & He, Weijun & Küfeoğlu, Sinan, 2021. "Estimating the marginal cost of reducing power outage durations in China: A parametric distance function approach," Energy Policy, Elsevier, vol. 155(C).
    3. 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).
    4. Xie, Bai-Chen & Ni, Kang-Kang & O'Neill, Eoghan & Li, Hong-Zhou, 2021. "The scale effect in China's power grid sector from the perspective of malmquist total factor productivity analysis," Utilities Policy, Elsevier, vol. 69(C).
    5. Jia Liang & Yongpei Wang, 2024. "Recognizing the nexus between grid infrastructure, renewable energy, net interregional transmission and carbon emissions: Evidence from China," Growth and Change, Wiley Blackwell, vol. 55(1), March.
    6. Wang, Jiexin & Wang, Song, 2023. "The effect of electricity market reform on energy efficiency in China," Energy Policy, Elsevier, vol. 181(C).
    7. Li, Chen & Liu, Zhao & Song, Rong & Zhang, Yue-Jun, 2024. "The impact of green credit guidelines on environmental performance: Firm-level evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 205(C).
    8. Yao, Shouyu & Pan, Yuying & Sensoy, Ahmet & Uddin, Gazi Salah & Cheng, Feiyang, 2021. "Green credit policy and firm performance: What we learn from China," Energy Economics, Elsevier, vol. 101(C).
    9. Hou, Zheng & Ramalho, Joaquim J.S. & Roseta-Palma, Catarina, 2025. "Dealing with endogeneity in stochastic frontier models: A comparative assessment of estimators," Energy Economics, Elsevier, vol. 151(C).
    10. Hou, Zheng & Roseta-Palma, Catarina & Ramalho, Joaquim José dos Santos, 2021. "Does directed technological change favor energy? Firm-level evidence from Portugal," Energy Economics, Elsevier, vol. 98(C).
    11. Agostino, Mariarosaria & Rondinella, Sandro & Ruberto, Sabrina, 2025. "Extreme weather events and efficiency in Italy's food sector: Does institutional quality matter?," Economic Modelling, Elsevier, vol. 146(C).
    12. Yi, Tianhao & Li, Lisha & Li, Zhiyong & Zhang, Jiaxuan, 2025. "Evaluating electricity transmission and distribution efficiency using Data Envelopment Analysis Forest with feature importance," Energy, Elsevier, vol. 330(C).
    13. Hou, Zheng & Roseta-Palma, Catarina & Ramalho, Joaquim J.S., 2024. "Can operational efficiency in the Portuguese electricity sector be improved? Yes, but..," Energy Policy, Elsevier, vol. 190(C).
    14. Xie, Bai-Chen & Wu, Qian-Xu & Qin, Yu-Yan & Zhang, Can, 2025. "Performance evaluation of emerging grid infrastructure Operations: Evidence from ultra-high-voltage transmission lines in China," Socio-Economic Planning Sciences, Elsevier, vol. 102(C).
    15. Dong, Hanjiang & Wang, Xiuyuan & Cui, Ziyu & Zhu, Jizhong & Li, Shenglin & Yu, Changyuan, 2025. "Machine learning-enhanced Data Envelopment Analysis via multi-objective variable selection for benchmarking combined electricity distribution performance," Energy Economics, Elsevier, vol. 143(C).
    16. Zhang, Tao & Li, Hong-Zhou & Xie, Bai-Chen, 2022. "Have renewables and market-oriented reforms constrained the technical efficiency improvement of China's electric grid utilities?," Energy Economics, Elsevier, vol. 114(C).

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    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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