Has the unbundling reform improved the service efficiency of China's power grid firms?

Abstract

© 2020 Elsevier B.V. The power sector is one of the pillar industries of China's national economy, and it is also a capital and technology intensive industry. In 2003 China's vertically integrated power utility corporation, the State Power Corporation (SPC), was unbundled and separated into quite many companies, including two grid firms, in an effort to increase competition and improve efficiency of the power industry. Grid firms are important public utilities as they are responsible for improving the reliability of the power supply and ensuring that all the residents have access to electricity. Using a balanced panel of 30 provincial power grid firms for the period 1999–2016, this study applies a distance function based panel data stochastic frontier analysis approach to study the impact of the unbundling reform on the service efficiency of the grid sector where factors affecting the inefficiency term are classified into four groups. The results indicate that introducing a capital variable into the analysis had a significant impact on the estimated efficiencies; In addition, the unbundling reform of the separation of power plants from the grid that was implemented in 2003 has not improved the service quality of the power grid firms; Both the customer hours lost and the maximum temperature difference had a negative impact on the service efficiency; At the same time, significant differences in service efficiency were found among the provinces and regions.