Easing the Transition to a Competitive Electricity Market in China

Abstract

The current Chinese IPP structure is ill-suited to China's current circumstances, as it critically over-stretches both the structure of the Chinese electricity system and the strength of the Chinese commercial legal system. As a result foreign investment in Chinese IPPs has slowed considerably. Tolling agreements could provide a reasonable and beneficial interim structure within the limits of the current commercial legal system while avoiding (or at least minimizing) the stresses created by the systemic conflicts of interest currently present in the system. And by allocating real (and not just apparent) risk to the parties best able to bear them while facilitating an increasing competitive electricity system, tolling agreements can lead to a modern electricity system providing maximum benefit to China.