IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v164y2022ics0301421522001422.html
   My bibliography  Save this article

Assessing China’s provincial electricity spot market pilot operations: Lessons from Guangdong province

Author

Listed:
  • Liu, Yang
  • Jiang, Zhigao
  • Guo, Bowei

Abstract

Aiming at improving the efficiency of power generation, China announced its plan to reform the electricity wholesale market. A focal point of the wholesale market reform is to introduce a stable and reliable electricity spot market. Using Guangdong’s spot market pilot operations as a case study, this article is the first to use rich ex-post market data to assess the efficacy of China's electricity spot market. To investigate the stability of the spot market, we estimate the relationship between prices and demand. We find the electricity supply curve is much steeper when demand approaches the capacity limit, suggesting the need to invest more thermal capacity to stabilize spot market prices (SMPs). To investigate the reliability of the spot market, we first estimate the market distortion caused by a price floor on SMPs, and we then examine whether local market power exists. The price floor on SMPs resulted in a welfare transfer from consumers to producers, the monetary value of which equals to 1.3% of the tradable value of the day-ahead market. We also find evidence of local market power in the east of Guangdong, suggesting the need to invest in more power lines connecting the west to the east.

Suggested Citation

  • Liu, Yang & Jiang, Zhigao & Guo, Bowei, 2022. "Assessing China’s provincial electricity spot market pilot operations: Lessons from Guangdong province," Energy Policy, Elsevier, vol. 164(C).
    • Handle: RePEc:eee:enepol:v:164:y:2022:i:c:s0301421522001422
    DOI: 10.1016/j.enpol.2022.112917
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421522001422
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2022.112917?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Meng, Ming & Mander, Sarah & Zhao, Xiaoli & Niu, Dongxiao, 2016. "Have market-oriented reforms improved the electricity generation efficiency of China's thermal power industry? An empirical analysis," Energy, Elsevier, vol. 114(C), pages 734-741.
    2. Zhao, Xiaoli & Ma, Chunbo, 2013. "Deregulation, vertical unbundling and the performance of China's large coal-fired power plants," Energy Economics, Elsevier, vol. 40(C), pages 474-483.
    3. Peng, Xu & Tao, Xiaoma, 2018. "Cooperative game of electricity retailers in China's spot electricity market," Energy, Elsevier, vol. 145(C), pages 152-170.
    4. Zheng, Xuemei & Menezes, Flavio & Nepal, Rabindra, 2021. "In between the state and the market: An empirical assessment of the early achievements of China's 2015 electricity reform," Energy Economics, Elsevier, vol. 93(C).
    5. Koichiro Ito & Mar Reguant, 2016. "Sequential Markets, Market Power, and Arbitrage," American Economic Review, American Economic Association, vol. 106(7), pages 1921-1957, July.
    6. Guo, Bowei & Newbery, David, 2021. "The cost of uncoupling GB interconnectors," Energy Policy, Elsevier, vol. 158(C).
    7. Newbery, David & Gissey, Giorgio Castagneto & Guo, Bowei & Dodds, Paul E., 2019. "The private and social value of British electrical interconnectors," Energy Policy, Elsevier, vol. 133(C).
    8. Lin, Jiang & Kahrl, Fredrich & Yuan, Jiahai & Liu, Xu & Zhang, Weirong, 2019. "Challenges and strategies for electricity market transition in China," Energy Policy, Elsevier, vol. 133(C).
    9. Zhang, Sufang & Jiao, Yiqian & Chen, Wenjun, 2017. "Demand-side management (DSM) in the context of China's on-going power sector reform," Energy Policy, Elsevier, vol. 100(C), pages 1-8.
    10. David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
    11. Powell, James L., 1984. "Least absolute deviations estimation for the censored regression model," Journal of Econometrics, Elsevier, vol. 25(3), pages 303-325, July.
    12. Michael R. Davidson and Ignacio Pérez-Arriaga, 2020. "Avoiding Pitfalls in China's Electricity Sector Reforms," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 119-142.
    13. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
    14. Blaise Allaz & Jean-Luc Vila, 1993. "Cournot Competition, Forward Markets and Efficiency," Post-Print hal-00511806, HAL.
    15. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
    16. Guo, Hongye & Davidson, Michael R. & Chen, Qixin & Zhang, Da & Jiang, Nan & Xia, Qing & Kang, Chongqing & Zhang, Xiliang, 2020. "Power market reform in China: Motivations, progress, and recommendations," Energy Policy, Elsevier, vol. 145(C).
    17. Michael G. Pollitt, 2020. "Reforming the Chinese Electricity Supply Sector," Springer Books, Springer, number 978-3-030-39462-2, June.
    18. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    19. Powell, James L., 1986. "Censored regression quantiles," Journal of Econometrics, Elsevier, vol. 32(1), pages 143-155, June.
    20. Kahrl, Fredrich & Williams, James H. & Hu, Junfeng, 2013. "The political economy of electricity dispatch reform in China," Energy Policy, Elsevier, vol. 53(C), pages 361-369.
    21. Powell, James L., 1986. "Two-Step Quantile Estimation Of The Censored Regression Model," SSRI Workshop Series 292681, University of Wisconsin-Madison, Social Systems Research Institute.
    22. Zhang, Sufang & Andrews-Speed, Philip & Li, Sitao, 2018. "To what extent will China's ongoing electricity market reforms assist the integration of renewable energy?," Energy Policy, Elsevier, vol. 114(C), pages 165-172.
    23. Chen Zhang & Wei Yan, 2019. "Spot Market Mechanism Design for the Electricity Market in China Considering the Impact of a Contract Market," Energies, MDPI, vol. 12(6), pages 1-23, March.
    24. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(3), pages 157-175.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chang, Xin & Wu, Zhaoyuan & Wang, Jingting & Zhang, Xingyu & Zhou, Ming & Yu, Tao & Wang, Yuyang, 2023. "The coupling effect of carbon emission trading and tradable green certificates under electricity marketization in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 187(C).
    2. Yuan, Rongsheng & Liu, Ming & Chen, Weixiong & Yan, Junjie, 2024. "Costs versus revenues of flexibility enhancement techniques for thermal power units in electricity-carbon joint markets," Energy, Elsevier, vol. 302(C).
    3. Li, Wanying & Dong, Fugui & Ji, Zhengsen & Xia, Meijuan, 2023. "Analysis of the compound differential evolution game of new energy manufacturers’ two-stage market behavior under the weight of consumption responsibility," Energy, Elsevier, vol. 264(C).
    4. Cao, Jing & Ho, Mun S. & Ma, Rong & Zhang, Yu, 2024. "Transition from plan to market: Imperfect regulations in the electricity sector of China," Journal of Comparative Economics, Elsevier, vol. 52(2), pages 509-533.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liu, Y. & Jiang, Z. & Guo, B., 2021. "Assessing China's Provincial Electricity Spot Market Pilot Operations: Lessons from the Guangdong Province," Cambridge Working Papers in Economics 2165, Faculty of Economics, University of Cambridge.
    2. Wang, Jiexin & Wang, Song, 2023. "The effect of electricity market reform on energy efficiency in China," Energy Policy, Elsevier, vol. 181(C).
    3. Chen, Hao & Cui, Jian & Song, Feng & Jiang, Zhigao, 2022. "Evaluating the impacts of reforming and integrating China's electricity sector," Energy Economics, Elsevier, vol. 108(C).
    4. Wang, Yongli & Zhou, Minhan & Zhang, Fuli & Zhang, Yuli & Ma, Yuze & Dong, Huanran & Zhang, Danyang & Liu, Lin, 2021. "Chinese grid investment based on transmission and distribution tariff policy: An optimal coordination between capacity and demand," Energy, Elsevier, vol. 219(C).
    5. Cao, Jing & Ho, Mun S. & Ma, Rong & Zhang, Yu, 2024. "Transition from plan to market: Imperfect regulations in the electricity sector of China," Journal of Comparative Economics, Elsevier, vol. 52(2), pages 509-533.
    6. Bertanha, Marinho & McCallum, Andrew H. & Seegert, Nathan, 2023. "Better bunching, nicer notching," Journal of Econometrics, Elsevier, vol. 237(2).
    7. Guo, Hongye & Davidson, Michael R. & Chen, Qixin & Zhang, Da & Jiang, Nan & Xia, Qing & Kang, Chongqing & Zhang, Xiliang, 2020. "Power market reform in China: Motivations, progress, and recommendations," Energy Policy, Elsevier, vol. 145(C).
    8. Fatras, Nicolas & Ma, Zheng & Duan, Hongbo & Jørgensen, Bo Nørregaard, 2022. "A systematic review of electricity market liberalisation and its alignment with industrial consumer participation: A comparison between the Nordics and China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 167(C).
    9. Geweke, J. & Joel Horowitz & Pesaran, M.H., 2006. "Econometrics: A Bird’s Eye View," Cambridge Working Papers in Economics 0655, Faculty of Economics, University of Cambridge.
    10. Golan, Amos & Judge, George & Perloff, Jeffrey, 1997. "Estimation and inference with censored and ordered multinomial response data," Journal of Econometrics, Elsevier, vol. 79(1), pages 23-51, July.
    11. Michael Pollitt, 2021. "Measuring the Impact of Electricity Market Reform in a Chinese Context," Working Papers EPRG2111, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    12. Sun, Kege & Wu, Libo, 2020. "Efficiency distortion of the power generation sector under the dual regulation of price and quantity in China," Energy Economics, Elsevier, vol. 86(C).
    13. Kim, Mo Se & Lee, Byung Sung & Lee, Hye Seon & Lee, Seung Ho & Lee, Junseok & Kim, Wonse, 2020. "Robust estimation of outage costs in South Korea using a machine learning technique: Bayesian Tobit quantile regression," Applied Energy, Elsevier, vol. 278(C).
    14. Devereux, Paul J. & Tripathi, Gautam, 2009. "Optimally combining censored and uncensored datasets," Journal of Econometrics, Elsevier, vol. 151(1), pages 17-32, July.
    15. Peng Shi & Wei Zhang, 2016. "A Test of Asymmetric Learning in Competitive Insurance With Partial Information Sharing," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(3), pages 557-578, September.
    16. Chen, Songnian & Wang, Qian, 2023. "Quantile regression with censoring and sample selection," Journal of Econometrics, Elsevier, vol. 234(1), pages 205-226.
    17. Jia, Zhijie & Lin, Boqiang & Wen, Shiyan, 2022. "Electricity market Reform: The perspective of price regulation and carbon neutrality," Applied Energy, Elsevier, vol. 328(C).
    18. Guannan Wang & Juan Meng & Bin Mo, 2023. "Dynamic Volatility Spillover Effects and Portfolio Strategies among Crude Oil, Gold, and Chinese Electricity Companies," Mathematics, MDPI, vol. 11(4), pages 1-25, February.
    19. Liu, Tingting & Xu, Jiuping, 2021. "Equilibrium strategy based policy shifts towards the integration of wind power in spot electricity markets: A perspective from China," Energy Policy, Elsevier, vol. 157(C).
    20. Li, T. & Gao, C. & Pollitt, M. & Chen, T. & Ming H., 2022. "Measuring the effects of power system reform in Jiangsu province, China from the perspective of Social Cost Benefit Analysis," Cambridge Working Papers in Economics 2247, Faculty of Economics, University of Cambridge.

    More about this item

    Keywords

    China power market reform; Market distortion; Local market power; Electricity spot market;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:164:y:2022:i:c:s0301421522001422. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.