Study On The Price Forming Mechanism And Reform Mode Of Electricity Industry In China

Since 1990s, globle electricity reform has gone through more than thirty years, although Hunt summarized The Four modes, and gave a rough order to promote reform, Joskow even summed up the 11 elements of standard electricity liberalization, different countries or different regions of the same country (like U.S.) use different reform modes. However, most countries have adopted a gradual approach to reform; different reform processing has big different performance, some cases even failed. There are a lot of research literatures of electricity reform, but on the one hand, there are still different views on what is the ideal mode for reform; on the other hand, studies are still inadequate on some key issues such as effectiveness, institutional, legal system of environmental conditions and firm behavior. Our country’s reforms began in 2002, but slow progress in recent years, also regressed in some areas. Considering the complexity of the reform, this situation has a certain inevitability and rationality, but one important reason is that the price mechanism of electricity market has not really established. Meanwhile, the impact of reform on the performance of the power sector is lack of systematic study. In some sense, this is a barrier to advancing the reform of the power sector. However, to give an answer to these questions, both in theory and practice are facing considerable challenges.The heart of electric power system reform is the reform of electricity pricing mechanism. The supply-demand relationship in electricity market is reflected by electricity price, which makes price a sensitive economic signal and the focal point for every party in this industry chain, including the generation, transmission, distribution, sale and even the customer. With the deepening of electricpower system reform, the electricity pricing structure in China will gradually transfer from single end-users price setting to multi-linked price chain. Electricity pricing mechanism need to be compatible with the target mode of electricity market. The pricing mechanism is required to reflect the cost structure of electricity system and market competition mechanism. It is also expected to stimulate the electric industry as well as the national economy development, reduce cost associated to operation and improve power efficiency and performance.Taking the electricity pricing mechanism and of electricpower system reform as the research objects, this paper conducted detailed research on the electricity pricing mechanism and its impact on industry reform. Under the theoretical framework of electric industry reform and price mechanism, we take the price mechanism as a core and start with the comparative analysis of industry chain performance. This paper analyses the Power industry chain performance level and further discusses the ideal model of electricpower system reform and routes to the aim.This paper firstly carries on scientific define to several important concepts and analyzes various vertical split reform models based on characteristics of electricity industry chain. We conducted theoretical research on pricing mechanisms of power generation, transmission and distribution, and sales. After the research analysis of various aspects of this industry chain, the paper further explores comprehensive analysis of the whole industry chain. In the environment of economic structure transformation, this research takes impacts from power industry chain performance and demand shock transmission into consideration, and conducted theoretical as well as empirical analyses, which provide bases to further suggestion on the ideal mode for electric power system reform and routes to the aim.Theoretical analyses are conducted from single market to vertical multi-market and from static processes to dynamic processes. According to the normal division of electric industry chain, this paper focuses on the pricing mechanism and market efficiency of power generation market as well as transmission and distribution market. The structural characteristics of power generation market is summarized as "oligarchic upstream and monophonic downstream". This paper constructs a pricing and strategy competition game theory model under monopsony assumption and analyzes companies’ behaviors under supply surplus and supply shortage conditions. According to Research, capacity constraints of power transmission network have significant impacts on power generation companies, which indicates the great influence of power transmission and distribution on the whole electricity industry chain. Under the capacity constraints of power transmission network, neither collusion among companies nor supply-demand relationship would affect the final result. Under the condition of power supply surplus, as the single buyer, power grid enterprises own higher purchasing power; this paper also carries out analysis on this point.Based on the analysis of firm behavior, the paper evaluate the performance of the electricity bidding market, and treat the electricity producers as oligopolies, the paper use welfare analysis in the case of cooperative and non-cooperative. The evidences show that, when upstream oligopolies are non-cooperative, the power grid companies will be the single buyer in the market which will set a monopoly price. The monopoly price will cause welfare losses. When upstream oligopolies are cooperative, welfare losses depends on whether there is cooperation between oligopolies and grid companies.In terms of power transmission and distribution market, this paper focuses on the price regulation under integrated distribution mode, and analyzes the pricing mechanism of the integrated distribution mode and the transmission and distribution separation mode. Based on that, some theoretical analyses between the two modes are introduced. According to the assumption, the transmission and distribution separation mode improves the welfare to some extent. This is because the transmission and distribution separation mode increase the competitive aspects which result benefits increase when comparing to the integrated distribution mode.As for Empirical Analysis, the paper takes China’s Power Industry Chain Performance as an object, using provincial panel data to analyze the performance of the industrial chain. The short-term and long-term relationship between electricity demand and economic fluctuations were analyzed. The results show that economic fluctuations and electricity demand fluctuations are synchronized in the long run; electricity demand fluctuations are mainly affected by fluctuations in high energy-consuming industries. Cyclical and seasonal fluctuations in heavy industry and high energy-consuming industries make the demand of electricity industry highly cyclical. However, our country doesn’t have the corresponding dynamically adjusted mechanism to cope with the dynamic periodic conduction. As for the analysis of the industrial chain performance, this paper summarizes the existing literatures which measure the industry chain performance and decompose the power industry chain performance into the investment performance, electricity supply performance and electricity demand performance; we analyze the power industry chain performance respectively from the three aspects. In terms of the variables selection, we refer to some existing literatures, selecting from the supply side indicators, the demand-side indicators and technical indicators, such as economic development, market structure factors, government regulation factors, resource endowments factors, etc.The empirical results show that, economic development, urbanization, industrialization level and the adequacy of endowment have a positive relationship with industrial chain performance from all aspects, the results are consistent with existing literatures. Abundance and low cost electricity generation structure primarily affect power industry chain performance from the electricity investment level and supply level. It is noteworthy that the degree of marketization and openness of the region do not affect the level of electricity investment, supply and demand, possibly because China’s electricity industry still maintained as a monopoly, the real price competition did not materialize. However, the result shows that competitive regional electricity market structure will promote the level of performance from all aspects of the power industry chain. This paper also analyzes the influence of institutional factors to the electricity industry performance, evidences shows that the implementations of the electricity market regulatory, the establishment of SERC have no significant effect; the deregulations in 1998 and 2002 are considered to enhance the level of electricity supply so as to enhance the industrial chain performance. The paper analyzes the relationship between regional electricity TFPs and electricity price fluctuations, the results shows on-grid electricity price levels significantly affects the electricity industry chain performance, there is a positive relationship.The key issue of electricity reform is how to achieve effective competition among electricity generation manufacturers under longitudinal spin structure, how to achieve the smooth market transactions between different electricity sectors under wholesale competition or retail competition mode and form effective price signals. China’s future electricity reform target pattern is from a single buyer mode to wholesale competition mode and then to retail competition mode. This paper summarizes and compares the possible modes of transmission and distribution system reform, and on this basis, proposed the transition mode during the process of the transmission and distribution separation reform. To promote the reform of electricity transmission and distribution, the first step is restructuring the transmission and distribution system, in order to achieve non-discriminatory access. This paper argues that restructuring may be one of the possible reform forms considering the characteristics of China’s regional power grid, such as reorganizing the regional backbone grid and regional transmission assets as Transmission Company, reorganizing the provincial power grid and local power grid as distribution companies.In the electricity reform process, rationalize the price is the core, and price regulation is the key. This paper argues the importance of building strong independent regulatory agencies which develop a unified electricity price. When promoting the rational development of the power industry, we need to consider environmental constraints, minimize the economic and environmental costs. As for the path of electricity reform, this paper mainly discuss from the aspects of power generation market, transmission and distribution market, electricity trading reform and power industry chain performance enhancement and gives the corresponding proposed measures. The research results have some theoretical and practical reference for the reform of the electricity sector in the future.