Modeling Oscillatory Shortage of Electricity Generating Capacity in China: A System Dynamics Approach

China has experienced a persistent shortage of electricity generating capacity since the late 1960s. This capacity shortage is mainly due to the shortage of thermal generating capacity. However, the shortage of thermal generating capacity has not been stable. There were several ups and downs in the shortage of thermal capacity while functioning capacity always fell behind desired capacity. System dynamics modeling was used to study the problem and endogenous causes for the oscillatory capacity shortage were analyzed. It was found that failure to take into account the capacity under construction can explain the oscillations in the shortage of capacity, while capacity shortage can be attributed to ignorance of construction time when deciding construction start so that capacity under construction was not big enough to increase functioning capacity in the presence of 3 years' construction time. Underestimates of desired capacity and underestimates of capacity depreciation were also part of the reasons for capacity shortage. The policy option of managing the stock of capacity under construction was recommended to both eliminate the oscillations in the capacity shortage and reduce the shortage. It was found that the policy was robust subject to long construction time. It was suggested in the paper that National Development and Reform Commission (NDRC) update their estimates of GDP growth rate, electricity intensity growth rate and capacity depreciation on a quarterly basis so as to reduce capacity shortage. However, capacity shortage becomes larger as GDP grows faster. Introducing more market effect into electricity price so that electricity price could be higher in the presence of electricity shortage could be an effective solution to improve electricity efficiency, thus offsetting fast growth in GDP a bit and thus reducing the capacity shortage, if the price elasticity in China is big enough.