FENG Yongsheng:Allocative Efficiency of Vertical Structure and Electricity Institution Reform in China

Abstract：The direction of vertical structure reform is fundamental in China's electricity institution reform process, and the choice depends on the allocative efficiencies of different vertical structures. The comparison between legal unbundling, ownership unbundling, and vertical integration depends on the tradeoff between the vertical economy effect, competition effect and regulation effect which could be influenced by the number of firms, as well as other basic market conditions. The tradeoff between vertical economy effect and competition effect dominates the comparison of two unbundling modes. As far as China's electricity industry, the vertical unbundling should take place on the interface between grid and marketing, not between transmission and distribution. It is an appealing path to restore the “commodity” nature of electricity, push forward the market-oriented reforms and improve ongoing reform measures by legally separating grid with marketing to construct a true market for trading electricity. Constructing the market for trading electricity aims to form a competitive wholesale market. The government should implement effective access regulation on the market, and try to overcome the obstacles from the unreasonable legal institutions regarding electricity.

Key words： Legal Unbundling   Ownership Unbundling   Vertical Integration   Electricity Institution Reform   Market for Trading Electricity

source:Finance & Trade Economics ,No.7,2014