Reform of Electricity Price Subsidy and Macroeconomic Impact of Electricity Price Rising. Dr. Yao Xin

Transcription

1 Reform of Electricity Price Subsidy and Macroeconomic Impact of Electricity Price Rising Dr. Yao Xin

2 The staged features of power demand From a CCEER research report for NDRC of China which focus on the growth story of developed countries. China s current economy, energy, and power growth in this rapid rate of urbanization will be expected to come to an end in 2020, so as the industrialization. Current stage is the rigidity of the energy consumption. In this period, power demand grows fastest among all kinds of energy demand.

3 Electricity Power Sector Reform in China-The Past The State Power Corporation owned 46% of the country s electricity generation assets and 90% of the electricity supply assets before On December 2002, the State Power Corporation were split into 11 new companies to end the corporation s monopoly of the power industry.

4 Electricity Power Sector Reform in China-The Past At the same time,china set up the State Power Regulatory Commission to supervise market competition and issue licenses to operators in the power industry. The new companies include two power grid operators, namely the State Power Grid and China South Power Grid.

5 Electricity Power Sector Reform in China-The Past The new companies include five electricity generation companies, namely Datang, Huaneng, Huadian, Guodian and China Power Investment Cooperation. They will compete with each other for signing contracts with the power grid operators.

6 Electricity Power Sector Reform in China-The Present Bidding for interconnection to the grid, as the most important goal of reform, did not realize because of various reasons, such as regional protectionism and fighting poverty. Electric power dispatching remain takes many factors into account including efficiency.

7 Electricity Power Sector Reform in China-The Present China is the world s second largest electricity generation and consumption market. The State Power Regulatory Commission has no enough rights until it disappeared, when it is incorporated into the National Energy Bureau. The SPRC even did not have a building of their own.

8 Power Market in China There is no power market in China now, in the strict sense. Firstly, as the most important factor, electricity price is not determined by the market, but set by the government. Secondly, it require government approval to getting in or out of the power market for enterprise. Not all of the enterprise can be free to participate in power market.

9 Electricity Power Sector Reform in China-The Present The report of third plenary session of the eighteen central committee said the government would promote the reform of electricity power sector. In fact, basing on our analysis, major reform measures will not being applied, except Large Consumers Directpurchasing Power.

10 Electricity Power Sector Reform in China-The Present Electricity power industry is still in a period of rapid growth in China until 2020, the end of urbanization. Since in the high-speed growth, there are no motive and reason to reform. The government doesn't know how much benefit it will get from the reform, for the government is not satisfied with the reform of 2002.

11 Electricity Price Subsidy For a transitional economy such as China, the electricity price subsidy is reasonable, and sometimes even necessary for achieving social goals. However, with rising electricity prices and environmental concerns, we see conflicts emerging between energy subsidies, energy demand/supply fundamentals and climate change considerations.

12 Electricity Price Subsidy For a transitional economy such as China, the electricity price subsidy is reasonable, and sometimes even necessary for achieving social goals. However, with rising electricity prices and environmental concerns, we see conflicts emerging between energy subsidies, energy demand/supply fundamentals and climate change considerations.

13 Electricity Price Subsidy Our research applies the price-gap approach to estimate China's energy subsidies. In 2007, China's electricity consumption was TWh. Of the total consumption, 75% was used by industry, 3% by agriculture, 2% by the transport sector, 1% by the construction sector, and 5% by other sectors. Household consumption accounted for approximately 11%.

14 Electricity Price Subsidy Pricing of electricity is consequently a very sensitive issue in China, and is still firmly controlled by the government. There are two basic characteristics of China's electricity tariff. Firstly, the overall tariff level is generally lower than supply costs and lower than that of developed countries. Secondly, the tariff for industry is much higher than the residential tariff, leading to a large cross subsidy.

15 Electricity Price Subsidy This is due to the government's effort to maintain the low electricity price to support its rapid economic growth, competitiveness of Chinese products in foreign trade, and other social economic objectives. Electricity net subsidies represent the second largest subsidy, amounting to CNY billion, approximately 21.41% of total subsidies and 0.31% of GDP.

16 Electricity Power Sector Reform in China-The Future It is the principle of reform that maintaining stability is of top priority. After the end of urbanization and industrialization, electricity power sector reform in China will speed up. The true meaning of the power market will appear in the China, before China join high-income countries.

17 Research Background Nowadays, with the China s economic slowdown, the conflict between China's coal and electricity industries become not too serious. But in the long term, we believe that coal price would continue to rise, because of the coal as a non-renewable resource. Apart from the pressure of rising coal rice, new energy utilization and low-carbon development approach will make the electricity price further increasing.

18 Research Background The only way to solve this conflict is to carry out the reform of electricity price mechanism and electricity reform in China will probably result in the electricity price rising.

19 Model In this investigation, the dynamic CGE model is an extension and modification of the models used in Lofgren et al.(2002), which consists of six parts, including production and trade, prices, agencies, pollution, system constraints and recursive dynamic.

20 Model In addition to the dynamic recursive part, the rest of the parts are in the same general static model. In addition to the equation of the dynamic recursive part, the subscript identifies t are omitted in other equations.

21 Production and Trade Equation (1) is used as a production function of the domestic activities. Equation (2) shows the distribution of domestic output of domestic sales and exports. Equation (3) characterizes domestic supply of comprehensive goods with the Armington function.

22 Price Equation (4) and (5) show domestic total output prices and comprehensive product prices in the domestic market, respectively.

23 Agency This part mainly defines the income and expenses of the economic agents (households, government and business, etc.).

24 Energy consumption and Emission Equation (6) shows the consumption of the i- th energy, including intermediate inputs and final consumption. As Equation (7) shows, E is the total energy consumption which is the sum of consumer demand for various types of energy.

25 Energy consumption and Emission

26 Energy consumption and Emission Equation (8) defines the pollution tax. Equation (9) defines the total emission. Equation (10) defines the rate of pollution reduction. Equation (11) defines the amount of pollution generation. Equation (12) defines the amount of pollution emission. Equation (13) defines the total pollution emissions tax.

27 System constraints System constraints are a variety of equilibrium relationships of CGE models, which include two aspects. The first is the market clearing. The second is the agencies account balance.

28 Recursive dynamic Equation (14) sets the growth rate of the labor factor input as a constant. Equation (15) defines the current capital stock.

29 Macro closure of CGE Model In this model, considering that China is not the case of full employment, we choose Johansen closure.

30 Special Settings The electricity price is set as the exogenous variable in the model. To maintain the balance, a dummy variable is introduced, so that the model can be solved, as described by Zhang (2010). According to the amount of generation hours, we fixed the electricity sector output growth range. We believe that electricity price subsidies exist in China, so the initial price rise is the process to reduce subsidy.

31 Data The base year of our model is Our data source is mainly from China Statistical Yearbook and China CEIC Database. The remaining parameters, such as various elasticity, are from Lin and Jiang (2011).

32 Conclusion Electricity price increasing will reduce the welfare of residents.

33 Conclusion 10% 30% 50% 70% GDP employment import export Electricity price rising has a negative impact on GDP and employment, at the same time it is a bigger negative impact on exports.

34 Conclusion 电价提高 10% 30% 50% 70% Energy consumption per unit of GDP Carbon dioxide emissions Raising electricity price is significant to alleviate the environment pressure. When price rises, the unit GDP energy consumption and carbon dioxide emissions have a more substantial decline.

35 Conclusion 10% 30% 50% 70% agriculture light industry heavy industry service High energy-consuming industries will be serious affected by the price rising. When the price rises, the higher the energy intensity of industry, the more obvious influences on the production of this industry, and the service industry is the least affected.

36 Conclusion When adjusting electricity price, the government should consider the range of the adjustment. If price increase is too large, it will have a huge negative impact on the economy.

37 Policy implications to China-The government worries China has been characterized by regional imbalances in the distribution of energy resources and economic development for a long time. The price of Chinese electricity affected the daily lives of most Chinese people. The next 6 years will be a key construction period for China s power industry.

38 Policy implications to China- What we need to do We must let the government know the negative impact of the power sector reform. Scholars should undertake the responsibility to persuade the government to reform.

39 Policy implications to China- Coal-electricity price linkage mechanism The mechanism of coal-electricity price linkage is a key issue in electricity and coal market reform in China. We can analyze the influence of coal price adjustment on the electric power industry, and the influence of electricity price adjustment on the macro economy in China based on our computable general equilibrium models.

40 Policy implications to China- Tiered electricity price Tiered electricity price (TEP) reform is a policy which is being carried out for household electricity conservation in China. Yet, the optimal level of each price tier need further research. We can calculate the household s welfare to find out the optimum solution based on our computable general equilibrium models.

41 Policy implications to China- PM2.5-fog haze-gas-fired Power Generation With the deterioration of the air quality, in some areas of China, the haze weather phenomenon incorporated into fog together as a severe weather.

42 Policy implications to China- PM2.5-fog haze-gas-fired Power Generation To solve it, gas is used to generate instead of coal. It will push the electricity price rise. The influence of electricity price adjustment on the macro economy in China can be measured using our computable general equilibrium model too.

43 Thank you!