Have renewables and market-oriented reforms constrained the technical efficiency improvement of China's electric grid utilities?

Abstract

China has carried out a series of regulatory reforms in the power grid network industry in the past decade, but not all the people believe that they have improved the efficiency of grid industry. The increasing renewable energy, as well as more frequently observed extreme weather have brought great challenges to the operation of grid firms. However, there are still few reports on the efficiency of utilities that combine the influence of reform, renewable energy, and extreme weather. This study estimates the impact of China's 2015 market-oriented reform on the efficiency of 30 provincial grid firms from 2010 to 2019. It aims to investigate the effect of this reform by means of the reform index and the reform implementation index while considering the impact of power mix changes and weather factors. The empirical results demonstrate that utilities that have promoted various reforms, represented by tariff reform, are generally more technically efficient. The efficiency improvement brought by reform outperforms the negative impact caused by the increasing intermittent renewable energy, especially after considering the contents of the reform. Grid firms in provinces with large temperature ranges can more easily attain high technical efficiencies. Overall, the technical efficiency of grid firms shows individual, regional, and environmental heterogeneity. These results call for a combination of power market reform and climate change mitigation strategy.