China's Power Industry Manufacturers Market Forces To Prevent Study

This dissertation tries to discuss some of the main issues of the power market-oriented reform in a framework of the industrial organization theory. The main objective of this dissertation is to find how to mitigate market power in the electricity power pool in our country. Through an empirical study we find some evidences of exercising market power by some of the generators in China. This dissertation gives some advices on preventing market power, including discriminatory price auction on supply side and interruptible services on demand side.Traditionally, the electric power industry has been regarded as a natural monopoly with generation, transmission and distribution integrated vertically well for 100 years. Since 1990, beginning in the U.K., there is a worldwide trend of restructuring in the electric power industry. China also unbundled its generation sector from the grid in 2002. However, the power market is not a direct result of independent actions by generators, distributors and customers, but an artificial market of a deliberate government policy. For this reason, oversights are hard to avoid in the market rules governing the operation. Prompted by profits, the independent producers separated from the vertically structure will attempt to exploit any profitable opportunities presented by the market rules. The course of the power market-oriented reform shows that high prices caused by the market power of the producers emerged in almost all areas after the supply side separated from the network. The Californian electricity crisis provides a stark evidence that market power will jeopardize the interest of the customers and impair power markets. Susceptible to the exercise of market power in the new power markets, mitigating them is therefore high on the agenda for regulators by some western scholars' consideration.In our economics academic circles, power market is pending for further research. Many literatures can hardly discuss market power in the light of specific technologies. This dissertation tries to combine some characteristic such as system load indetermination, transmission capacity limitation and short-run generation constraints into the analyses. Based on the technique analysis and an empirical study, we find that generators in a power market are not exercising their market power all the time, as is different from the classic IO theory. When conditions exogenous to the behavior of the generators favor it, they will abuse their potential market power.Generators have two strategic weapons to exercise their market power: (1) the price bid for each generation set and (2) the capacity for each generation set made available to supply the market. Our empirical study shows that bidding and withholding strategy both can be found in our pilot power market, as is similar to the foreign markets.Market rules, market structure, and elasticity of demand are the important features of the power Pool which contribute to the ability of generators to abuse market power, so we focus on these factors in our analyses. In fact, the starting point of this dissertation is to minimize those market rules that can bring out wholesale price spikes.Auction studies suggest that price volatilities are differences between the uniform price auction and discriminatory price auction. Following their suggestion, we compare two supply functions using a uniform price and a discriminatory price auction for an electricity market, and find that the supply curves will typically be more price elastic using a DPA than UPA. Therefore, DPA is a better form for a power market to control the market power.Another source of generators' market power is the low elasticity of the demand side. Responsive pricing can dampen the incentive of excising market power because price spikes in the wholesale market can curb the customs' demand in time. However, responsive pricing needs a basis of complete peak-load pricing system. In our country, there is a long way for a reasonable retail price system to be achieved, and there is a incentive dilemma of the responsive pricing, so we should considering some other way to enhance the demand side elasticity. This dissertation shows that interruptible load service has the same effect as responsive pricing in building an elastic demand side and mitigating market power. However, interruptible load service avoids those shortcomings mentioned above, so it is an ideal scheme.This dissertation brings some original ideas on defining the range and measuring the concentration of the power market, and creates a new approach to study empirically of the capacity withholding strategy. There are some inadequacies in our analysis such as a plain model and simple econometric methods. Furthermore, we can't get some core data because of the hard blockade of the information in the electric power industry in our country.Power market is still in its initial stage, and the market rules and structures still need to be investigated and improved. According to our national conditions, we should adopt various measures to prevent market power including newly installed capacity investments, transmission expansion and an effective regulation, besides methods mentioned above.