Resolving near-term power shortages in China from an economic perspective

2021 and 2022 saw several provinces in China experience power shortages. As a result, many provincial governments decided to approve and build large amounts of new coal capacity to address the power shortage issue. However, this solution does not address the core reasons for the power shortages in China. The Centre for Research on Energy and Clean Air (CREA) and WaterRock Energy Economics have published a report reviewing the solutions to near-term power shortages in China. The report outlines reasons for power shortages, such as the current tariff-setting mechanism, and the associated dispatch protocol. Their specific designs have led to distorted incentives for power capacity operations and investments within and across the provinces.