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

Chenxi Xiang, Xinye Zheng, Feng Song, Jiang Lin () and Zhigao Jiang
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Chenxi Xiang: Renmin University of China
Xinye Zheng: Renmin University of China
Feng Song: Renmin University of China
Jiang Lin: Lawrence Berkeley National Laboratory
Zhigao Jiang: Zhineng Consultant Company

Nature Energy, 2023, vol. 8, issue 7, 747-757

Abstract: 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.

Date: 2023
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DOI: 10.1038/s41560-023-01278-9

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