Estimating The Efficiency Of China’s Power Industry Under The Consideration Of Heterogeneity

China’s power industry has experienced rapid development in recent years,and the remarkable achievement is attributed to a series of reforms,especially the implementation of “Separate power plants from grids” in 2002.It separated the former monopoly industry into generation,transmission,distribution and retail sections,and the introduction of competition motivated power generation companies to improve their performance.However,there still exist some problems,including the imbalance between supply and demand of electricity,and the increasing regulations of environmental pollution.The government need to deepen reforms and strengthen supervision with the help of efficiency evaluation.This study analyzes the efficiency of these two industries separately,combining the stochastic frontier analysis models with cost functions or distance functions.When analyzing the generation industry,we evaluate the performance of coal-fired generation companies and the impact of ownership,using a panel data of 17 government-owned coal-fired companies from 2007 to 2015.In addition,this study estimates the operation efficiency of grid industry by using a panel data of 31 provincial grid companies from 1993 to 2014,and analyzes the effect of unbundling policy as well as other environmental factors.The results show that there is still room to improve the efficiency of both generation and grid industry.The efficiencies are sensitive to the model specifications,which indicates that the effect of heterogeneity should be taken into consideration,so as to enhance the objectivity and the credibility of the results.The central governmentowned power generation companies exhibit higher efficiency than local governmentowned companies.In order to improve performance,the local companies should be encouraged to invest more resources in sophisticated equipment,personnel training and advanced technology as well as strengthen their management to counteract adverse unobserved heterogeneities.As for the grid companies,their efficiency improvement could be hindered by adverse environment conditions,but policy regulations can offset the negative impact.The unbundling policy has not obviously promoted the grid industry,thus more effort should be put into promoting provincial grid level efficiency.