Power Generation Side Of The Bidding And The Vertical Integration Of The Coal-fired Electricity Vendors

Electricity is the guarantee for the continuous development of the national economy.Since 1997,electricity sector has been reformed for market competition step by step,to realizing the separation between power plant and electricity networks. In recent years,power plants compete to increase generation volume,and the product of electricity has intended to be oversupplied.In Dec.2003,China established the biggest 5 generator group,separating the electricity networks of all of our country, complementing the strategy of "bidding for accessing to networks",which is the first step of the reform.The first run of bidding for accessing to networks is the sole buyer stage,which will affect the power industry and coal and electricity industry chain.Nowadays,the price of coal market has been deregulated,and get rising all the time,which reinforce the contradiction of coal and electricity industry.After the separation between power plant and electricity networks,and bidding for accessing to networks,power plants have to undertaken the cost themselves resulting from the rising coal price,because the final electricity price always is regulated.So,the power plants need to find a method to decrease coal cost.This article argued that if china plans to bidding for accessing to networks effectively,it should identify the total effect of bidding for accessing to networks on upstream and downstream industry.It would analyse correctly the background of bidding for accessing to networks,the history of coal and electricity conflict,and the effect of bidding for accessing to networks on coal and electricity vertical relationship, obtaining the anticipation of the effect,and according to the private motivation, putting forward the suggestion of coal-electricity vertical integration.This article had a systematic research about coal and electricity vertical integration and its social effect.Using the modern industry organization theory and game theory method,and on the basis of s-c-p paradigm,it built a complete theoretic frame and several game theory models to conduct analysis.In regard of s-c-p paradigm,it firstly studied the coal-electricity vertical relationship arrangement on the basis of enterprises private motivation,under the effect of two main factors:bidding for accessing to networks and increasing coal pricing,arguing that power plants have the incentive to merger upstream coal enterprises;then it studied whether vertical integration would induce the price collusion between downstream power plants. Afterthat it consulted the international experiences about bidding for accessing to networks and coal-electricity vertical relationship,and contrasted with China's conditions.On the basis of research above,this article puts forward several policy suggestions.The paper was arranged as below:In the first place,bidding for accessing to networks encourages power plants to reduce costs,increasing efficiency.One of methods to decreasing cost is that power plant merges upstream coal business.In fact,as for power plants,there is the motivation to be a merger.If vertical integration requires that power plants should merge with desired enterprises,vertical integrator could improve the efficiency because of high-efficiency upstream part.The downstream part of vertical integration could take use of enough cheap coal to generate electricity,which would reduce marginal cost and would increase the competitive advantage.From the point of the paper,vertical integration has the competitive effect,and the price of electricity would get down,which benefits the total society.In the second place,vertical integration facilitates the price collusion of downsteam generation industry because of the factor of relationship-specific investment.The rival of downstream would buy coal from vertical integration enterprises,and the price of coal is higher than its marginal cost,and than the marginal cost of rival of upstream.When there are some other transaction methods to transfer,coal-electricity integration would not facilitate the price collusion.Meanwhile,it will encourage competition among generators.Furthermore,the effective efficiency of exclusive contract was studied. Independent coal and power enterprises apply exclusive contract,which has no price collusion effect.If power plants want to guarantee the supply of coal,they should accept the contract.However,the outcome of the contract is that the wholesale price of coal is equal to coal production marginal cost.Coal enterprises are reluctant to provide the contract to downstream enterprises,because of rising coal price and coal's high demand.This article argued that if the transfer payment in the contract would be lower than zero,which means that power plants should buy the contract.Thus,coal enterprises are willing to provide the contract.Lastly,China should enact law to encourage coal-electricity vertical integration, at the same time,improve related policy and policy environment.