Abstract
We examine the economic reforms in China's electric power industry during the 1980s, describe China's pre-reform economy and show how investment and price reforms affected the power industry. Despite notable gains in economic and energy efficiencies following the introduction of market-oriented policies, some reform measures produced undesirable side-effects for the power industry. Using a simple economic model, it is possible to show that the multiple-price system adopted in the mid-1980s for paying power producers results in the underutilization of China's newest and most energy-efficient plants. We provide an estimate of the fuel losses which may have resulted from this pricing policy and suggest alternative pricing rules which will reduce efficiency losses in the power industry.
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