Cost efficiency of electric grid utilities in China: A comparison of estimates from SFA-MLE, SFA-Bayes and StoNED-CNLS

- We assembled a data set including 23 provincial power grid companies spanning from 2005 to 2009.
- We conducted an empirical study based on the SFA-MLE, SFA-Bayes and StoNED-CNLS methodologies.
- Our results show that the average efficiency value from different models ranges from 0.85 to 0.92.
- Our results demonstrate that there is exogenous technical progress during the sample period.
- Comparing Chinese electric grid utilities with their counterparts in other countries is necessary.

With the purpose of estimating the range of cost efficiency levels of the power grid sector in China, we assembled a data set including 23 provincial power grid companies spanning from 2005 to 2009 and conducted an empirical study based on the SFA-MLE, SFA-Bayes and StoNED-CNLS methodologies. Empirical results show that the average values of efficiency from different models vary from 0.85 to 0.92, depending especially on the assumptions underlying inefficiency content. Further, results demonstrate that there is exogenous technical progress during the sample period, and per capita GDP of the province is negatively related to the costs of the electric grid company located in the corresponding province. We hope this empirical study will contribute to the debate on an efficiency-based regulation scheme which was introduced to the Chinese electric grid sector on a pilot base in 2014.