An Empirical Analysis of Reform and Efficiency in China’s Electricity Sector

Abstract

This chapter reviews the history of electricity market reforms and the evolution of electricity pricing mechanism and examines the effect of reforms on the improvement in efficiency of thermal power plants from 1998 to 2013. The results show that, during this period, significant improvement was achieved in the technical efficiency of thermal power plants calculated using the data envelopment analysis (DEA) method and in the efficiency of thermal power plants proxied by techno-economic indicators, including the auxiliary power ratio, the coal consumption rate, and the oil consumption rate. Two representative reform policies, the electricity system reform and direct trading policy, are considered to examine the effect of reforms on improvement in efficiency. It finds that the electricity system reform improves the efficiency of thermal power plants only in the short run and has minor influence on technical efficiency; the direct trading policy can reduce the oil consumption rate and the auxiliary power ratio of thermal power plants, and this effect is mitigated by increases in installed capacity. The government should thus continue to promote electricity market reform and emphasize the active role of market reform in power plant efficiency.KeywordsChinaEfficiencyElectricity sector reform