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The Impact of China’s Electricity Deregulation on Coal and Power Industries: Two-stage Game Modeling Approach

Author

Listed:
  • HuiHui Liu

    (Academy of Chinese Energy Strategy, China University of Petroleum)

  • ZhongXiang Zhang

    (Ma Yinchu School of Economics and China Academy of Energy, Environmental and Industrial Economics, Tianjin University)

  • ZhanMing Chen

    (Department of Energy Economics, School of Economics, Renmin University of China)

  • DeSheng Dou

    (Academy of Chinese Energy Strategy, China University of Petroleum)

Abstract

The regulated price mechanism in China’s power industry has attracted much criticism because of its incapability to optimize the allocation of resources. To build an “open, orderly, competitive and complete” power market system, the Chinese government launched an unprecedented marketization reform in 2015 to deregulate the electricity price. This paper examines the impact of the electricity price deregulation in the industry level. We first construct two-stage dynamic game models by taking the coal and coal-fired power industries as the players. Using the models, we compare analytically the equilibriums with and without electricity regulation, and examine the changes in electricity price, electricity generation, coal price and coal traded quantity. The theoretical analyses show that there are three intervals of the regulated electricity sales prices which influence the impact of electricity price deregulation. Next, we collect empirical data to estimate the parameters in the game models, and simulate the influence of electricity deregulation on the two industries in terms of market outcome and industrial profitability. Our results suggest that the actual regulated electricity price falls within the medium interval of the theoretical results, which means the price deregulation will result in higher electricity sales price but lower coal price, less coal traded amount and less electricity generation amount. The robustness analysis shows that our results hold with respect to the electricity generation efficiency and price elasticity of electricity demand.

Suggested Citation

  • HuiHui Liu & ZhongXiang Zhang & ZhanMing Chen & DeSheng Dou, 2018. "The Impact of China’s Electricity Deregulation on Coal and Power Industries: Two-stage Game Modeling Approach," Working Papers 2018.17, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2018.17
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    Cited by:

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    2. Cui, Shana & Pittman, Russell & Zhao, Jian, 2018. "Restructuring the Chinese Freight Railway: Two Scenarios," MPRA Paper 88407, University Library of Munich, Germany.

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    More about this item

    Keywords

    China; Electricity Deregulation; Reform; Coal Industry; Power Industry;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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