The impact of China's electricity price deregulation on coal and power industries: Two-stage game modeling

HuiHui Liu, ZhongXiang Zhang, Zhan-Ming Chen () and DeSheng Dou

Energy Policy, 2019, vol. 134, issue C

Abstract: The regulated price mechanism in China's power industry has attracted much criticism because of its incapability to optimize the allocation of resources. To build an “open, orderly, competitive and complete” power market system, the Chinese government launched an unprecedented marketization reform in 2015 to deregulate the electricity price. This paper examines the impact of electricity price deregulation at the industry level. We first construct two-stage dynamic game models to portrait the interaction between the coal and coal-fired power industries. Using the models, we compare analytically the equilibriums with and without electricity price regulation concerning electricity price, electricity generation, coal price and coal production. The theoretical analyses find three regulated electricity price intervals that differentiate the reform impacts. Afterward, we collect empirical data to estimate the model parameters. The influences on the two industries in terms of market outcome and industrial profitability are simulated. Our results suggest that the current regulated electricity price falls within the medium interval, which means deregulation will result in higher electricity price but lower coal price, less coal production and less electricity generation. The robustness analyses show that our results hold with respect to the electricity generation efficiency and price sensitivity of electricity demand.

Keywords: China's energy reform; Electricity deregulation; Coal industry; Power industry (search for similar items in EconPapers)
JEL-codes: L94 L98 Q41 Q43 Q48 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:134:y:2019:i:c:s0301421519305440

DOI: 10.1016/j.enpol.2019.110957

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