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

Author

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  • Yuanxin Liu

    (School of Economics and Management, North China Electric Power University, Beijing 102206, China
    Beijing Key Laboratory of New Energy and Low-Carbon Development, 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)

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.

Suggested Citation

  • Yuanxin Liu & Feng Yun Li & Xinhua Yu, 2018. "Gas Supply, Pricing Mechanism and the Economics of Power Generation in China," Energies, MDPI, vol. 11(5), pages 1-34, April.
    • Handle: RePEc:gam:jeners:v:11:y:2018:i:5:p:1058-:d:143226
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    References listed on IDEAS

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    Cited by:

    1. Jianfei Shen & Fengyun Li & Di Shi & Hongze Li & Xinhua Yu, 2018. "Factors Affecting the Economics of Distributed Natural Gas-Combined Cooling, Heating and Power Systems in China: A Systematic Analysis Based on the Integrated Decision Making Trial and Evaluation Labo," Energies, MDPI, vol. 11(9), pages 1-28, September.
    2. Izabela Godyń & Anna Dubel, 2021. "Evolution of Hydropower Support Schemes in Poland and Their Assessment Using the LCOE Method," Energies, MDPI, vol. 14(24), pages 1-23, December.
    3. Yamano, Shuhei & Nakaya, Takashi & Ikegami, Takashi & Nakayama, Masayuki & Akisawa, Atsushi, 2021. "Optimization modeling of mixed gas engine types with different maintenance spans and costs: Case study OF CCHP to evaluate optimal gas engine operations and combination of the types," Energy, Elsevier, vol. 222(C).
    4. Li, Fengyun & Li, Xingmei & Zheng, Haofeng & Yang, Fei & Dang, Ruinan, 2021. "How alternative energy competition shocks natural gas development in China: A novel time series analysis approach," Resources Policy, Elsevier, vol. 74(C).

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