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Avoiding Pitfalls in China’s Electricity Sector Reforms

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  • Michael R. Davidson
  • Ignacio Pérez-Arriaga

Abstract

China has recently reinvigorated reforms to its electricity sector, focusing on increasing the role of markets and improving regulation. While restructuring an electricity sector is difficult and can require years of detailed planning, China’s approach relies upon broad central guidelines with many details and initiatives left to provincial governments. We assess the current state of reform efforts through the lens of five “pitfalls†based on well-established regulatory economics literature and international lessons, focusing on contract structure, system operation, and regulation. We find that while market efforts are likely to achieve efficiency gains with respect to the planned system, they may fall short of crucial functions of a market, such as incentivizing flexibility given increasing renewable energy penetrations. Making markets work will likely require a stronger centralization of market design and regulatory oversight authorities.

Suggested Citation

  • Michael R. Davidson & Ignacio Pérez-Arriaga, 2020. "Avoiding Pitfalls in China’s Electricity Sector Reforms," The Energy Journal, , vol. 41(3), pages 119-142, May.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:3:p:119-142
    DOI: 10.5547/01956574.41.3.mdav
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    References listed on IDEAS

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    1. Kumar, Alok & Chatterjee, Sushanta, 2012. "Electricity Sector in India: Policy and Regulation," OUP Catalogue, Oxford University Press, number 9780198082279.
    2. Anupama Sen, Rabindra Nepal, and Tooraj Jamasb, 2018. "Have Model, Will Reform? Assessing the Outcome of Electricity Reforms in Non-OECD Asia," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    3. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
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