Michael R. Davidson and J. Ignacio Pérez-Arriaga

A wide range of countries have chosen to introduce competition into one or several segments of the traditional vertically-integrated utility (VIU) model of electricity supply. Due to differences in institutional histories, resource endowments, regulatory philosophies, and macro-economic conditions, these transitions have been often protracted and incomplete (Jamasb, 2006; Correlje & de Vries, 2008). Calculating efficiency penalties of macro market design issues, such as the choice of zonal price zones over locational marginal pricing, is an important and growing area of research (Aravena & Papavasiliou, 2017). However, the effects on outcomes of the range of observed institutional combinations are not well explored in the literature.

China is currently undergoing a decades-long transition toward competitive electricity markets–most recently reinvigorated in 2015–while maintaining dispatch priorities that preserve quotas for coal generators and create non-physical barriers to trade.  This paper develops a unit commitment (UC) optimization for the northeast region of China which minimizes production cost subject to both technical constraints and political priorities. We focus on the northeast grid, which is known for its inflexible must-run cogeneration, coal overcapacity, and persistent wind curtailment (Zhao et al., 2012).

Our findings show that while the quota and must-run cogeneration in winter contribute to increased system costs, they alone do not explain the region’s poor wind integration. When inter-provincial trade is constrained in both the short- and long-term–i.e., reserves cannot be shared across provincial borders  and transmission is limited by long-term contractual agreements–wind integration increases several-fold (see figure). Importantly, just one of these two sources of inflexibility alone is insufficient to significantly increase wind curtailment.



A unit clustering technique is implemented (with acceptable aggregation errors in the objective of 0.02%) to deal with the long-term coupling quota constraints and to run sensitivities across uncertain policy parameters. Furthermore, our results are robust to changing the level of must-run cogeneration.

This unified model of technical and political constraints can provide guidance for reforms under consideration, in order to achieve near-efficient outcomes and other policy priorities such as renewable energy integration. For example, popular reforms of reducing the quota through long-term bilateral contracts without addressing inter-provincial trade barriers may not yield all desired benefits. Indeed, as quotas are reduced, the efficiency losses from limited transmission are enhanced.

The modeling framework presents additional opportunities for capturing realism of operating under political context. Future work could expand to other network and generator configurations, and explore more detailed dispatch heuristics and agent coordination mechanisms to understand additional observed inflexibilities.



Aravena, I., & Papavasiliou, A. (2017). Renewable Energy Integration in Zonal Markets. IEEE Transactions on Power Systems, 32(2), 1334–1349.

Correlje, & de Vries. (2008). Hybrid Electricity Markets: The Problem of Explaining Different Patterns of Restructuring. In F. P. Sioshansi, Competitive electricity markets: design, implementation, performance. Amsterdam: Elsevier.

Jamasb, T. (2006). Between the state and market: Electricity sector reform in developing countries. Utilities Policy, 14(1), 14–30.

Zhao, X., Zhang, S., Yang, R., & Wang, M. (2012). Constraints on the effective utilization of wind power in China: An illustration from the northeast China grid. Renewable and Sustainable Energy Reviews, 16(7), 4508–4514.

Photo credit: Michael Davidson 


Further Reading: CEEPR WP 2017-010

About The Authors

Michael R. Davidson is a Ph.D. candidate in engineering systems at the MIT Institute for Data, Systems, and Society. Michael studies the engineering implications and institutional conflicts inherent in deploying renewable energy at scale, particularly in systems with emerging electricity markets.

Ignacio J. Pérez-Arriaga received his M.S. and Ph.D. degrees in electrical engineering from MIT, and the electrical engineering degree from the Universidad Pontificia Comillas (UPC) in Madrid, Spain. He is a professor of electrical engineering at UPC, and founded its Institute for Research in Technology, of which he served as director for 11 years. He has also been vice rector for research at UPC, and currently holds the BP Chair on sustainable development. He has published more than 200 papers, been principal investigator in more than 75 research projects and supervised more than 30 doctoral theses on the aforementioned topics. He is a permanent Visiting Professor at MIT (2008-present) in the Center for Energy and Environmental Policy Research (CEEPR), where he teaches a graduate course on power system regulation, engineering and economics.