The effect of unified national electricity markets: A simulation analysis in China

This paper investigates the potential effects of a unified electricity market in China, which accounts for roughly one-third of global electricity generation. We develop a theoretical framework combining the Cournot model, capturing firms' strategic behavior, with a cost-minimization benchmark. Using 2019 provincial data on thermal units, hourly electricity demand, and interprovincial transmission, we simulate five counterfactual scenarios. Results show that full national unification without transmission constraints substantially lower average electricity prices by 35.6%, reduce generation costs by 11.6%, and raise welfare by 12.1% relative to provincial autarky. By contrast, the cost-minimization model underestimates these gains, highlighting the importance of accounting for strategic behavior in assessing market outcomes. Regional coordination captures the majority of efficiency gains, while transmission bottlenecks limit price convergence and lead provincial disparities. We also find that market unification can produce counterintuitive effects on carbon emissions, as shifts between coal and gas generation may increase emissions even when total generation rises. These findings highlight the trade-offs between efficiency and environmental objectives and provide policy-relevant insights for the design of China's ongoing electricity market reforms.