The impact of electricity market reform on renewable energy production

Abstract

Deregulation in the electricity market can potentially improve electricity production structure and allocate resources more efficiently through competition. This paper leverages the recent electricity market reform in China and uses the difference-in-difference method to study the impact of China’s electricity market reform on the installed capacity and electricity generation from different sources. Our results show that installed capacity growth has slowed down after the electricity market reform in the pilot provinces, suggesting more efficient utilization of existing capacity and reduced need for new capacity. The reform has also boosted the generation of hydropower and suppressed the generation of non-hydro power, such as wind and solar power due to the cost differences in renewable energy production. The reform has also increased the annual utilization hours of wind and solar generators. Our results have important implication on the polices to encourage grid stability and competitiveness with the rapid development of wind and solar power generation.