The impacts of the coal-electricity price linkage on the profit efficiency of China’s thermal power plants

Under the dual track mechanism of ‘market coal and plan electricity’, China’s power price cannot be adjusted in a timely manner according to the changes in the coal price. The authorities put forward the policy of coal electricity linkage to overcome this dilemma in 2004 and updated the relevant details in 2016. Based on the directional distance function, this study measured the profit efficiency of over 1300 thermal power plants in China during 2002–2011 and investigated the impacts of the linkage policy using scenario analysis. We implemented the bootstrap method to analyse the sensitivity of the estimators of efficiency to sample variation and the impacts of plant-specific factors. The empirical results show that: First, compared to the predetermined directional vector approach, the generalised endogenous projection vectors made the estimated inefficiency scores perform better in objectivity, feasibility, and differentiation. Second, technical inefficiency was the primary cause of the profit inefficiency during the study period rather than allocative inefficiency. The large generation groups attained higher profit efficiencies than the power plants not affiliated to them. Finally, in straightening out the relationship between the coal and power prices, the linkage mechanism could only be a transitory step to the electricity market-oriented reform.