Demand elasticity, ramsey index and cross-subsidy scale estimation for electricity price in China

Abstract

In 2015, China proposed to gradually reduce the cross-subsidy of electricity price. In order to reduce cross-subsidies and make electricity price reflect its actual cost, it is necessary to estimate the scale of cross-subsidies. Existing research has not yet seen the estimation of the scale of cross subsidy of electricity price for electricity grid, provinces, and residential and industrial users. Based on Ramsey's pricing theory and panel data of 30 provinces in China from 2006 to 2017, this paper constructs an empirical model of power demand and price for industrial and residential users. The price elasticity of power demand for residential and industrial users is determined, and the Ramsey price index of residential and industrial users are calculated. The scale of cross-subsidies for electricity prices of residential and industrial users at the national level and in different power grids and provinces are estimated. The conclusions are as follows: (1) The elasticity of electricity demand of residential users is greater than that of industrial users. (2) The sales price of residential and industrial users deviates from Ramsey's theoretical price. (3) The cross-subsidy provided by industrial users is far greater than that accepted by residential users. (4) The residential users of Central China power grid receive the most cross-subsidies, and the industrial users of North China power grid provide the most subsidies. (5) The unit power consumption of residential users in Northwest power grid receives the most subsidies, while the industrial users in Central China power grid provide the most subsidies. (6) The scale of cross-subsidy of electric power in developed areas is larger than that in underdeveloped areas. (7) Since 2015, the power system reform has little impact on the total power consumption of residential and industrial users.