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In between the state and the market: An empirical assessment of the early achievements of China's 2015 electricity reform

Journal Article


Abstract


  • This is the first study to investigate and quantify the extent to which the 2015 reform has already impacted the economic and technical performance as well as the security of supply of China's electricity sector. We use provincial data from 2003 to 2018 to estimate the impacts of the reform on on-grid prices, average retail electricity prices (including those for households) and supply reliability. We adopt fixed effect models together with other dynamic panel data models. We find that the 2015 reform has already had a negative impact on on-grid prices of electricity generated from thermal energy and on overall average retail prices, but the impacts on other prices are not statistically significant. Our results also suggest that the 2015 reform has significantly induced improvement to technical efficiency, as measured by the coal burned per unit of thermal generation, but no impact on the line loss rate of electricity transmission. In addition, our empirical analysis suggests that the 2015 reform has reduced reliability and increased the instances of supply interruptions. These results are robust to different estimators and models. Finally, the effect of the reform is heterogeneous across regions. Our findings suggest that additional steps are needed to further improve the overall economic efficiency of the electricity sector in China, despite significant progress arising from the 2015 reform. The results may also provide useful lessons for other developing economies aiming to reform their power sectors and who are facing similar choices between the roles of the state and the market in ensuring efficient outcomes.

Publication Date


  • 2021

Citation


  • Zheng, X., Menezes, F., & Nepal, R. (2021). In between the state and the market: An empirical assessment of the early achievements of China's 2015 electricity reform. Energy Economics, 93. doi:10.1016/j.eneco.2020.105003

Scopus Eid


  • 2-s2.0-85098135076

Web Of Science Accession Number


Volume


  • 93

Abstract


  • This is the first study to investigate and quantify the extent to which the 2015 reform has already impacted the economic and technical performance as well as the security of supply of China's electricity sector. We use provincial data from 2003 to 2018 to estimate the impacts of the reform on on-grid prices, average retail electricity prices (including those for households) and supply reliability. We adopt fixed effect models together with other dynamic panel data models. We find that the 2015 reform has already had a negative impact on on-grid prices of electricity generated from thermal energy and on overall average retail prices, but the impacts on other prices are not statistically significant. Our results also suggest that the 2015 reform has significantly induced improvement to technical efficiency, as measured by the coal burned per unit of thermal generation, but no impact on the line loss rate of electricity transmission. In addition, our empirical analysis suggests that the 2015 reform has reduced reliability and increased the instances of supply interruptions. These results are robust to different estimators and models. Finally, the effect of the reform is heterogeneous across regions. Our findings suggest that additional steps are needed to further improve the overall economic efficiency of the electricity sector in China, despite significant progress arising from the 2015 reform. The results may also provide useful lessons for other developing economies aiming to reform their power sectors and who are facing similar choices between the roles of the state and the market in ensuring efficient outcomes.

Publication Date


  • 2021

Citation


  • Zheng, X., Menezes, F., & Nepal, R. (2021). In between the state and the market: An empirical assessment of the early achievements of China's 2015 electricity reform. Energy Economics, 93. doi:10.1016/j.eneco.2020.105003

Scopus Eid


  • 2-s2.0-85098135076

Web Of Science Accession Number


Volume


  • 93