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"Multistep" electricity pricing for residential users: A case study of China.

Raisa Epikhina Lomonosov Moscow State University Over the past 2 decades Chinas electric power sector one of the largest and fastest growing in the world has experienced significant structural changes. Generation has been separated from transmission; there have been carried out several wholesale market experiments; certain industrial consumers have been allowed to purchase electricity directly from power generators. However Chinas electricity pricing policy for residential users has remained practically unchanged. As of now, tariff for this group of consumers is still regulated by the Government and kept at a relatively low level by means of cross-subsidization. It also remains undifferentiated, so all residential consumers are eligible for discounted prices regardless of their income and total amount of electricity they use. Needless to say that this pricing policy fails to ensure sufficient flow of financial resources to power producers, hinders implementation of market reforms in electricity industry and creates no incentives for energy conservation in the household sector. [4, 7, 8] Multistep (or multitier) electricity pricing is a new form of billing that is expected to solve most of the above mentioned problems. According to the 12-th five-year plan (2011-2015), China is to carry out a reform in order to divide the existing tariff for residential users into 3 levels (preferential price, regular price and penal price) depending on the amount of electricity consumed. [2, 6] The basic principle of the reform is The less electricity you use, the less you pay. The aim of the reform is to encourage energy conservation and support the poor by providing them with electricity at a low price, while punishing those who do not save energy by making them pay a higher price for extra electricity they use. [3] At the same time the Government encourages adoption of the "time of use tariff" policy in order to transfer electricity consumption from peak load to valley load through price signals. Multistep electricity pricing has already been tested in three Chinese provinces. The results of the experiment, however, show that the reform has certain weak points. For instance, it does not take into account such important factors as seasonality, climate differences between southern and northern regions, differences in the level of income in cities and villages, total amount of residents in a household, as well as electricity consumption for water heating. As of now, the reform is being revised by the National Development and Reform Commission (NDRC) and is to come into effect until 2015. [1, 5] While this reform alone will not eliminate cross-subsidization and regulation of electricity pricing, it will allow the Chinese Government to gradually raise power tariff for residential users, channel subsidies to the poor, promote energy conservation and possibly predetermine further market reforms in the sector. References Guojia fazhan gaige wei gongbu jumin jieti dianjia zhenfqiu yijian qinkuang (On public discussion of the Guidance on introduction of multistep electricity pricing for residential consumers issued by NDRC). NDRC, 2010. 2. Guomin jingji he shehui fazhan di shier ge wunian guihua gangyao. (Peoples economy and social development 12th five-year plan outline), The Central Peoples Government of the Peoples Republic of China. 3. Jieti dianjia ruhe xunmi heli jieti (How to find optimal [price] levels for multistep tariffs). China electricity industry news network. 8_317003.htm 4. Lin Boqiang, Jiang Zhujun, Lin Jing., 2009. You mubiao de dianjia butie youzhu yu nengyuan gongping he xiaolv (Targeted electricity subsidies promote fair and efficient [distribution of] energy). Jinrong yanjiu (Journal of Financial Research) 11, 1-18. 5. Ma Hongman, 2010. Renmin ribao renmin shiping: jieti dianjia ruhe daxiao gongzhong yilv (Peoples opinion: How to dispel peoples doubts over multistep electricity pricing), Renmin ribao (Peoples Daily), October 11. 6. NDRC, 2010. Guanyu jumin shenghuo yongdian shixing jieti dianjia de zhidao yijian (zhengqiu yijian gao). (Guidelines on the introduction of multistep electricity pricing for residential consumers (project for public discussion). 374091.htm 7. Zhu Chengzhan, 2009. Guanyu dianjia jiegou zhong de jiaocha butie wenti (On cross-subsidization in the structure of electricity tariffs), Zhongguo dianli bao (China Electricity Newspaper), July 27, 4. 8. Zhu Chengzhan, 2010. Guanyu woguo shixing jieti dianjia de jianyi he shexiang (Proposals and ideas on promotion of multistep electricity pricing in China). Zhongwai nengyuan (Sino-Global Energy) 5, 13-17. 1.