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

Nature Energy volume 8, pages 747–757 (2023)Cite this article

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An Author Correction to this article was published on 10 August 2023

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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.

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Fig. 1: Relationship between operating hours and heat rate of coal-fired generators before and after the reform.
Fig. 2: Changes in average operating hours of low-efficiency generators and high-efficiency generators before and after the reform.
Fig. 3: Heat rates and allocated hours of generators with different ownership structures.
Fig. 4: Allocated generation and hours of different generators in Guangdong after the reform.
Fig. 5: Generation mixes in three scenarios with different dispatch approaches.
Fig. 6: Carbon emissions in three scenarios.

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Data availability

The unit-level data and high-frequency data used during the current study were obtained under a confidentiality agreement and hence cannot be made publicly available. Other data are available from the corresponding author on reasonable request.

Code availability

Requests for the code developed and annotated in Stata (Version 15) and Matlab (Version R2016a) to process and analyse the primary data will be reviewed and made available upon reasonable request.

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Acknowledgements

This work is supported by the National Natural Science Foundation of China (20211GZ0113). We thank H. Chen and J. Cui for the model discussion from an economic perspective. We are grateful to Q.-F. Meng for the model discussion from a mathematical perspective.

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Authors and Affiliations

  1. School of Applied Economics, Renmin University of China, Beijing, China

    Chenxi Xiang, Xinye Zheng & Feng Song

  2. Lawrence Berkeley National Laboratory, Berkeley, CA, USA

    Jiang Lin

  3. University of California Berkeley, Berkeley, CA, USA

    Jiang Lin

  4. Zhineng Consultant Company, Beijing, China

    Zhigao Jiang

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  1. Chenxi Xiang
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Contributions

C.X., X.Z., J.L. and F.S. designed the study. X.Z., F.S. and Z.J. supported the data collection. C.X. performed the modelling, carried out the analysis and drafted the paper. J.L. supervised the work, co-wrote the paper and provided policy recommendations. All authors reviewed the paper.

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Correspondence to Jiang Lin.

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Nature Energy thanks Da Zhang and the other, anonymous, reviewer(s) for their contribution to the peer review of this work.

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Supplementary Notes 1–3, Tables 1–7, Figs. 1–3 and References.

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Xiang, C., Zheng, X., Song, F. et al. Assessing the roles of efficient market versus regulatory capture in China’s power market reform. Nat Energy 8, 747–757 (2023). https://doi.org/10.1038/s41560-023-01278-9

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