Study On Vertical Relationship Of China's Coal Industry And Electricity Industry

Since the price of coal was not controlled by the government, the negotiations between coal enterprises and electricity enterprises have repeatedly stalled in annual "coal transaction meeting", which is called the conflicts between coal industry and electricity industry. The two sides argue for their own prices, and do not compromise. The government has to intervene to break the deadlock, even that the number of contracts signed is quite few, and the amount is priceless. Coal industry and electricity industry belong to China's important energy sources, and the deadlock brings remarkable negative effects to the national economy. In this context, the relationship between them attracts the attention of China's government and academia.Many scholars have pointed out that the causes of conflict lies in the system, such as horizontal dual-price system, vertical dual-price system, conflicts of planned and market economy. However, some scholars attribute it to different market powers of them. The price of coal is difficult to negotiate because of the parity. As to the solution of the conflicts, the scholars have also proposed a variety of programs and comments, such as linkage of coal and power, contractual arrangements and vertical integration. The vertical relationship is still lack of systematic study.On this basis of literature review, the paper firstly combs the evolution process of vertical relationship between coal industry and electricity industry in order to analyze the essential cause of the conflict. By reviewing the reforms of coal market and power market, this paper proposes that the relationship was not prominent in the planned economy, while in the process of reform when the coal enterprises and power enterprises are market entities, the conflict is obvious, especially when the economy developed or the coal production capacity is reduced. The fundamental of conflict is that they are market participants, which are responsible for their profits.The price of coal is determined by the negotiations between two parties which are market entities. Since the basis of coal-electricity relationship is cooperation bargaining game, the solution to coal-electricity conflict should be based on cooperation as well. The bargaining scope between the two parties depends on the positions of their threat points, and the latter is determined by the comparison of bargaining power. The supply and demand in coal market, the government regulation, and the market structure of coal and electricity generation make great efforts to the bargaining trade between the two parties. The shortage of coal reinforces the bargaining power of the coal producer, while the asymmetric regulation from government strengthens the bargaining power of the electricity plants and reduces the bargaining scope. No matter their powers are more or less, the government's regulation will be inevitable.Because the negotiation between coal enterprises and power enterprises costs much, the paper advocates vertical integration to solve the contradiction. The conclusion can be drawn that vertical integration will increase consumption and profits and decrease electricity price, while it may bring market foreclosure as well, which is not very effective.