THE DISTRIBUTIONAL EFFECT OF INTER-REGIONAL TRANSMISSION GRID EXPANSION ON CHINA’S POWER INDUSTRY

Abstract

China suffers significant heterogeneities in resource endowments and geological conditions across the regions. Ultra-high voltage (UHV) line construction is a project put forward by the government to boost the inter-regional transmission grid expansion, benefiting economic development by reducing pollutant emissions and absorbing more clean energy. This study investigates the extent to which this giant infrastructure has distributional effects on China’s power industry. We estimate the distributional effect of UHV lines from the perspective of power deployment, carbon emissions, and producer surplus by simulating an equilibrium model of the national electricity market through the mixed complementarity problems (MCPs) method. Furthermore, the Lorenz curve is also employed to investigate the distributional effect of UHV introduction. The results indicate that: (1) the distributional effect of introducing UHV lines is regressive considering its limited contributions to the equalization of environmental and economic welfare; (2) the emission reduction effect of the UHV lines has been improved between 2015 and 2018; (3) power plants with a large installation capacity could seek more economic profits while emitting more pollution; (4) the deployment of clean power in the resource-abundant regions is far below its potential. Meanwhile, we propose improving the structure and technology of the power mix, which can accelerate China’s market-oriented reform of the power system by equally distributing the benefits.