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China's power sector - great growth but at great cost, says Thomas Rawski

Chapter 8: Growth, Upgrading, and Excess Cost in China’s Electric Power Sector

By Thomas G. Rawski

This chapter reviews the recent trajectory of China’s power sector, which has delivered an impressive combination of growth, technological upgrading, network expansion, and improved reliability during the past several decades. These advances come at high cost. Chinese and US electricity prices are similar; Chinese power providers enjoy multiple cost advantages over US electric utilities, but achieve consistently weaker financial results. This combination of prices and financial outcomes implies that the average cost of producing and delivering each unit of electricity is higher in China than in the United States.

This surprising discovery signals the presence of substantial inefficiency. Our review of the years 2005–16 identifies 30 percent as a lower bound for excess costs within China’s electricity system. I conclude with a survey of recent reform initiatives, which fix prices for transmission and delivery of electricity, expand the scope for direct contracting between generating companies and end-users and introduce competition into retail electricity sales. (p.355)

In Policy, Regulation and Innovation in China’s Electricity and Telecom Industries. Loren Brandt and Thomas G. Rawski, eds. Cambridge University Press, 2019.

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