Performance of alternative electricity prices on residential welfare in China

Highlights: • A low-income family receives only 1/3 cross-subsidy of the high-income household. • Subsidy for energy poor living below the power lifeline is 15% of the nonpoor now. • Scenarios with steeper blocking price perform better in subsidy redistribution. • Lifeline energy poor and income poor are protected if scenario HMM is implemented. China is undergoing an energy-market reform while the residential sector remains the most prudent for its close relationship with livelihood. Based on the Chinese household energy consumption survey, a demand function is established to estimate the determinants of residential electricity consumption. With a micro-model, the changes in welfare and redistribution under different scenarios are estimated. From the results, the current subsidy is ineffective; each high-income family receives the cross-subsidy of 35.65 CNY per month, which is 3 times of the low-income family. Price increment leads to less subsidy and deadweight loss but a loss in welfare, and the adjustment in the price on the 1st block is more conducive to the subsidy decline. With a similar overall effect, the non-uniform increase is more effective in subsidy redistribution by widening the price gradients between IBP (increasing block price) blocks and is recommended. Considering the burden of subsidy, the government and the power grid companies are suggested to clarify the pricing scheme to help the public get informed, and thereby, win the support of the public in the energy reform.