Generation planning and investment under deregulated environment: comparison of USA and China

Abstract

The electric power industry all over the world has gone through a fundamental restructuring in recent years from regulated or state-owned monopolies to competitive markets. In many developed countries, such as the USA, where power companies are mostly investor-owned private enterprises, the changes are brought about in a large part because the generators of the independent power producers, originally introduced for environmental and conservation reasons in 1070's, that use newer technologies, can compete favorably with the generation from the traditional power companies. As a matter of fact, the guaranteed rate-of-return regulation has resulted on oversupply of generation in many developed countries. The developing countries in Asia, such as China, on the other hand, with their rapid economic development, face totally different pressures. Economic growth has driven up even higher growth in electricity. These countries are hard pressed to come up with the necessary capital to build the huge demand of additional generators. As a result, countries are changing the laws and rules to encourage private investment in electric generation. Private generators are then demanding open markets for fair competition and potential expansion of capacity in all three sectors, i.e. generation, higher return. The promise of the competitive market is a more efficient and responsive industry. The electric power industry is an established industry. Its investment, especially in generation, is relatively high and takes a long period of commitment. Electricity plays a tremendously important and indispensable role in the modern society: in individual's daily life and society's economic well-being. Policy makers are straddled with the difficult issue of balancing the adequacy and cost of power supply. Different rules and processes have been devised for generation planning and investment as part of the experiment in restructuring. There is no clear winner of an ideal or optimal solution. In this paper, after a brief introduction of the power industry and the current status of restructuring in China, we first discuss the process for generation planning and investment in the well as in China and then compare the impact of such different approaches in terms of the goals of deregulation, i.e., efficiency incentive, economic signaling and risk distribution