Electricity Market Creation in China: Policy Options from Political Economics Perspective
Abstract
:1. Introduction
2. The Reforms of the Power Industry in China
2.1. The 2002 Reform of the Power Industry in China
2.2. The Second-Round Reform of the Power Industry in China
3. Market Structure of the 2015 Reform
3.1. Schema 1: Integration of Generation and Retail Services while Integrating Transmission and Distribution
3.2. Schema 2: Integration of Generation, Distribution and Retail Services while Independent of Transmission
4. Pricing Mechanisms
4.1. Pricing Mechanism 1: Bilateral Contracts
4.2. Pricing Mechanism 2: Double-Sided Auctions
5. Further Discussion
5.1. The Role of Two State-Owned Grid Companies
5.2. The Promotion of Renewable Energy Utilization
6. Conclusions
Author Contributions
Funding
Conflicts of Interest
References
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Components | Price Maker | Fee Collector |
---|---|---|
The transaction price | Decided by the negotiation between generators and large users or between generators and retailers. | Earned by generators. |
The transmission and distribution price | Dominated by National Development and Reform Commission (NDRC). | Earned by grid companies. |
The government funds | Dominated by NDRC. | Earned by the government. |
The electricity price | Sum up the transaction price, the transmission and distribution price, and the government funds. | Paid by large users or consumers. |
Schema | Representative Country |
---|---|
Integration of distribution, transmission, distribution, and retail services | Japan [23], France [8] |
Integration of generation, distribution and retail services while independent of transmission | UK [24] |
Integration of distribution and retail services while independent of generation and transmission | India [25], Brazil [2] |
Integration of generation and retail services while independent of distribution and transmission | New Zealand [26] |
Integration of transmission and distribution while independent of generation and retail services | Canada [27] |
Integration of generation and retail while integrating distribution and transmission | Australia [7] |
Schemas | Advantages | Disadvantages |
---|---|---|
Schema 1 Integration of generation and retail services while integrating transmission and distribution. | GR firms can be substantially beneficial due to their advantages in competition. | The distribution section is not open to the private capitals. |
Customers can gain benefits from the reduction in the electricity price due to the competitive pricing mechanism. | The private capitals without generation assets are difficult to enter into the power exchange market. | |
The transmission and distribution price become more reasonable and more transparent. | The management and supervision costs are high as the integrating firms should account the business of each section separately. | |
Schema 2 Integration of generation, distribution and retail services while independent of transmission. | It is able to reduce the protest form grid companies against the reform as they are allowed to enter the retail market. | It is highly likely to create monopolization by the super power companies of integrating generation, distribution and retail services. |
The distribution efficiency can be improved as the distribution section is open to private capitals. | The costs of separating the distribution section from the transmission section are high. | |
The form of GDR firms can prevent the power market from excessive competition. | Coordination of the grid planning under this schema is challenging and expensive. |
Pricing Mechanisms | Advantages | Disadvantages |
---|---|---|
Bilateral contracts | 1. The transaction price is generated by bilateral negotiation, which can reflect the relationship between supply and demand. | 1. The deals are determined by the long-term confidential contracts, which are not transparent enough. |
2. Bilateral contracts can prevent the electricity price from fluctuating violently as long-term contracts can stabilize the market risk. | 2. The existing integrating firms are so powerful in the market that new generation enterprises and new retail firms find it difficult to participate in the power exchange. | |
3. Costs for management and supervision of the power exchange market are high. | ||
Double-sided auctions | 1. The transaction price is generated from the direct trading by both sides, which can reflect the relationship between supply and demand. | 1. Management and supervision of the transactions by double-sided auctions are difficult and expensive, as different provinces have diverse bidding rules. |
2. Retailers have the competitive advantages of their professional skills and auction strategies. | 2. The electricity price may fluctuate violently, and the market is risky as the price reacts sensitively to the market. | |
3. Large users without professional bidding strategies are in an unfavorable situation of the power exchange market. |
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Lei, N.; Chen, L.; Sun, C.; Tao, Y. Electricity Market Creation in China: Policy Options from Political Economics Perspective. Sustainability 2018, 10, 1481. https://doi.org/10.3390/su10051481
Lei N, Chen L, Sun C, Tao Y. Electricity Market Creation in China: Policy Options from Political Economics Perspective. Sustainability. 2018; 10(5):1481. https://doi.org/10.3390/su10051481
Chicago/Turabian StyleLei, Ni, Lanyun Chen, Chuanwang Sun, and Yuan Tao. 2018. "Electricity Market Creation in China: Policy Options from Political Economics Perspective" Sustainability 10, no. 5: 1481. https://doi.org/10.3390/su10051481