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

Hong-Zhou Li, Xian-Liang Tian () and Tao Zou

Applied Energy, 2015, vol. 151, issue C, 296-305

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.

Keywords: Coal-electricity pricing linkage scheme; Stochastic frontier cost function; Cost efficiency; Coal-fired power plants in China; Regulatory impact analysis (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (14)

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DOI: 10.1016/j.apenergy.2015.04.073

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