Assessing China's Provincial Electricity Spot Market Pilot Operations: Lessons from the Guangdong Province

Yang Liu, Zhigao Jiang and Bowei Guo

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Targeting on improving the efficiency of power generation, China announced its plan to reform the electricity wholesale market. A focal point of the wholesale market reform is to introduce a stable and reliable electricity spot market. Using Guangdong's spot market pilot operations as a case study, this article becomes the first which uses ex-post market data to assess the efficacy of China's electricity spot market. To investigate the stability of the spot market, we estimate the relationship between prices and demand. We find the electricity supply curve to be non-linear and convex, suggesting the needs to invest more thermal capacity to stabilise the spot market prices (SMPs). To investigate the reliability of the spot market, we first estimate the market distortion caused by a price floor on the SMPs, and then examine whether local market power exists. The price floor on the SMPs resulted in a welfare transfer from consumers to producers, the monetary value of which equals to 1.3% of the tradable value of the day-ahead market. We also find evidence of local market power in the east of Guangdong, suggesting the necessity of investing more power lines connecting the west to the east. Finally, policy implications are provided.

Keywords: China power market reform; market failures; local market power; electricity spot market (search for similar items in EconPapers)
JEL-codes: D61 Q41 Q48 (search for similar items in EconPapers)
Date: 2021-09-17
New Economics Papers: this item is included in nep-cna, nep-com, nep-ene, nep-isf and nep-reg
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