Gas Supply, Pricing Mechanism and the Economics of Power Generation in China

Yuanxin Liu, Feng Yun Li and Xinhua Yu
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Yuanxin Liu: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Feng Yun Li: School of Economics and Management, North China Electric Power University, Beijing 102206, China
Xinhua Yu: School of Economics and Management, North China Electric Power University, Beijing 102206, China

Energies, 2018, vol. 11, issue 5, 1-34

Abstract: During the “13th Five-Year Plan” period, green energy is the top priority for China. China has realized that natural gas, as a low-carbon energy source, fits with the nation’s energy demand and will play a critical role in the energy transition, but the actual industry development is slower than expected. By analyzing the major gas corporations around the world, the paper finds that the key factors of the sector are supply and price of the energy resource. A comprehensive analysis on domestic and foreign imported gas reveals a trend of oversupply in China in the future. Given the critical import dependence, China has introduced a series of gas price reforms since 2013, which have led to negative impacts on important gas consumption sectors including power generation. With the levelized cost of electricity (LCOE) model, we find that under the prevailing gas supply structure and price level, the economy of utility gas power generation will remain unprofitable, while combined cooling heating and power (CCHP) is only commercially feasible in coastal developed regions. If continuing, such a trend will not only bring forth disastrous consequences to gas power industry, but also damage the upstream gas industry, more importantly, impede the energy transition. We conclude the paper with policy implications on pricing mechanism reform, developing domestic unconventional gas and the R&D of gas turbine.

Keywords: China’s natural gas; supply and consumption; pricing mechanism; economic of gas power generation; LCOE method (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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