The social welfare effect of electricity user connection price policy reform

Abstract

To reduce the electricity costs of the whole society and promote the fair sharing of dedicated power grid connection costs, the Chinese government plans to explore and implement the electricity user connection price policy reform. Therefore, it is of great practical significance to explore the potential social welfare effect of the reform. Based on the principle of costs fair allocation, this paper constructs a two-part connection pricing model with the goal of minimizing the electricity costs of the whole society, and theoretically analyzes the impact of the electricity user connection price policy reform on social welfare, including consumer surplus and grid enterprise profit in the short run and long run, which under the scenarios where the connection costs are borne by the grid enterprise or the government and transferred to the electricity consumers through connection price or taxes respectively, and further selected financial data of State Grid Corporation of China and China Southern Power Grid from 2016 to 2020 for numerical simulation test. The results show that: The electricity user connection price policy reform should be carried out in the way that grid enterprise only charge connection price from dedicated power grid users, and the connection price should be formulated using the rate of return regulation model. Although this policy reform will lose about 3.11% of social welfare in the short run, it will increase social welfare by about 0.48% in the long run. For every 0.1% increase in the proportion of the connection costs in the transmission and distribution costs, social welfare will increase by about 0.177 billion RMB. In addition, the redistribution between the dedicated power grid users’ consumer surplus and the grid enterprise profit can be realized by adjusting the proportion of the connection costs borne by dedicated power grid users, thereby achieving different policy goals.