Research on information disclosure strategies of electricity retailers under new electricity reform in China

https://doi.org/10.1016/j.scitotenv.2019.136382Get rights and content

Highlights

  • Information disclosure mechanism is of great significance to the retail market.

  • We study the different strategies of power retailers under new electricity reform.

  • Retails with good service quality behave differently from sellers with poor quality.

Abstract

The Chinese government has issued “No.9 document” to start a new round of reform. Retail competition mechanism has been launched and more participants are encouraged to involve into the sell side. However, the electricity retail market is still imperfect and needs continuously improving at current stage, in which information disclosure mechanism is of great significance. This paper analyzes and compares the information disclosure strategies of power retailers under new electricity reform in China. The results show that the retail companies with better service quality are more inclined to disclose information, while sellers with poor service quality tend to hide information. Information non-transparency will result in some inefficiencies inevitably and perfect information disclosure system is expected to promote competition, thus ensuring market fairness. These findings may provide some references for the future development of the electricity retail market and electricity reform.

Introduction

The Chinese government has launched a series of reforms since the 1980s to support the development of the electricity industry (Lin and Purra, 2019). Progress was very slow until 2002. In 2002 reform, the vertical integration power corporation was divided into five generation companies and two power grid enterprises to introduce competition into the electric market (Wang and Chen, 2012). However, the electric market is not competitive as the process of electricity transmission, distribution and retail are monopolized by the two power grid enterprises i.e. China Southern Power Grid and State Grid Corporation of China (Yao et al., 2019). These two grid companies buy power from competitive generation plants and sell it to end consumers. This monopoly mechanism has inevitably resulted in costs for users in the regulated market.

For the further development of the electricity sector, China issued a reporter entitled “Furthering Reform of the Electricity Market”, i.e. No 9 document to start a new round of reform in 2015 (Meng et al., 2016; Lin et al., 2019a, Lin et al., 2019b). The deregulation of prices in competitive sectors (generation and retail side) is of great significance in this reform (Zhang et al., 2017). Moreover, the competition mechanism is further applied to the electricity retail market and more suppliers are encouraged to participate in selling to ensure that the users are able to choose the retailers (Zeng et al., 2016).

By March 2017, about 6400 electricity retail companies had been registered. With more retailers involved in, the gap between retail market and consumers will be bridged. However, at the present stage, the electricity retail market is still imperfect and need to be continuously improved. All systems of power retail market are important, especially information disclosure mechanism, to ensure fairness and efficiency of the whole market by regulating market behavior (Matisoff, 2013). It is widely recognized that proper and adequate information disclosure plays an important role in a free-market economy where participants can make scientific decisions with enough information (Brown et al., 2018; Hoang et al., 2020). This means that information disclosure can bring big data analytics to participants, so that participants can better obtain market information and know their competitors and customers better (Rialti et al., 2019). Perfect information disclosure system is expected to ensure the transparency and increase the degree of competition, thus promoting the resource allocation and market fairness (Holmberg and Wolak, 2016).

It is worth noting that Chinese electricity retail market is at the early stage of liberalization. The introduction of competition into the retail side gives the opportunity for consumers to choose the supplier, however, some inefficiencies will be caused by information non-transparency, such as unplanned blackouts (Defeuilley, 2009). Though the regulation notice has been issued in southern China, a national system has not been formed. Under this background, how to construct information disclosure mechanism has become the focus.

Specifically, the contents of electricity information contain many aspects, such as supply and demand entities, prices, the efficiency, transaction costs, and market fairness. Power supply is homogenous and the retailers may differ in several aspects with different service quality or contract types (Mulder and Zomer, 2016). Although the entrance threshold has been set up, well and poorly qualified retailers mix in the sell side. Power consumers may blindly choose electricity retail companies, relying on limiting information. Thus, some poorly qualified electricity retailer may play tricks in customers, while they actually cannot fulfill the contracts or provide power supply with poor quality, thus harming the consumers. Information disclosure mechanism as well as big data analytics helps to enhance the competitive advantage of the retail companies with better service quality, which leads customers to make correct and timely decisions (Bag et al., 2020).

Different from the wholesale market, power sale market has the characteristics of the retail industry, and more attention should be paid to the purchase-sale relationship and service quality. With the deepening of electricity reform, the competition will become increasingly intense (Li et al., 2019). With the increasing number of participants, factors of influencing competitiveness not only include price competition, but also service quality competitiveness.

As mentioned above, information disclosure mechanism is of great significance and how to construct the competitive retail market and the information disclosure mechanism is still at the stage of exploring. However, previous research on electricity information disclosure or rules issued by governments mainly focuses on the wholesale electricity market and the retail market is less involved. Based on the game theory, this paper studies the information disclosure strategies of electricity retailers under new electricity reform in China, emphasizing the importance of information disclosure at the early stage of market liberalization. And it further discusses the content and scope of information disclosed. These findings may provide some references for the future development of the electricity retail market and electricity reform.

The reminder of this paper is organized as follows. In Section 2, we describe the related literature. Section 3 introduces the basic model. Section 4 discusses information disclosure strategies for the competitive retailers and compares the equilibrium outcomes under different scenarios. In Section 5 we introduce further analysis about the contents of information disclosed by electricity retailers. Section 6 concludes the paper and suggests topics for future research.

Section snippets

Literature review

Our work is related to two streams of research in the literature. One stream is the construction of the electricity retail market and the second stream is the information disclosure in the power sector.

Model description

Electricity is a complex and intangible product (Markard and Holt, 2003). As the electricity retail market has been gradually formed, the existing information disclosure mechanism is not perfect. There is serious information asymmetry among electricity retailers and power consumers. The electricity in itself can be seen as a homogeneous product, while the power quality service can be seen as an ancillary service which can be tailored for consumers on the basis of their demand (Mulder and Zomer,

Sub-game (N, N)

Under sub-game (N, N), both retailers choose not to reveal their information in the electricity market, thus the consumers do not know their true quality of both retailers. In expectation, consumers believe that the quality levels of both retailers are q. In this scenario, the demand functions for retailer 1 and retailer 2 are as follows.Q1=Dap1+θ1p2+βqλqQ2=Dap2+θ2p1+βqλq

According to Eqs. (1), (2), we can obtain the expected profits of the two retailers.π1p1=p1c1Dp1+θ1p2+βqλqπ2p2=p

Further discussion

The discussion above shows that perfect information disclosure system is helpful to set up the fair competitive market and improve market efficiency. With the promoting of reform, Beijing Electric Power Trading Center and Guangzhou Electric Power Trading Center have been established, as well as various provincial power trading centers. The notice entitled “Implementation Rules for Inter-provincial and Cross-regional Electricity Market Information Disclosure in Southern Region” has been issued

Conclusion and suggestions

Based on the game theory, this paper studies the information disclosure strategies of electricity retailers under new electricity reform in China. The results show that regardless of whether the poorly qualified retailers disclose information or not, for well qualified retailers, the optimal strategy is to disclose its own information. In this way, it can reveal better service quality signals to consumers and the demand can be increased. For poorly qualified retailer, on the contrary, the

Declaration of competing interest

The authors declare no conflict of interest.

Acknowledgments

This work is supported by the project of State Grid Zhejiang Electric Power Co., Ltd. (Research on Information Disclosure and Risk Prevention Mechanism of Zhejiang Electricity Market), and the project of Fuzhou University (Electricity Market Information Disclosure Mechanism in the Early Term of Electricity Reform).

References (41)

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