Study on the cost composition and control of coal power in China under the perspective of policy evolution

Abstract

The direction of China's power supply side to cleaner transformation has become a foregone conclusion, the future will mainly rely on new energy and renewable energy, coal-powered units will gradually from the main power supply to the regulating power supply, standby power change. However, due to China's special policy background and the annual rise in coal costs, China's coal power prices have long been subject to high-cost squeeze, cost-price linkage failure one after another, the survival and development of coal power has brought great risks and challenges. Research shows that the policy changes experienced by China's coal power is the primary reason for its cost system composition and price formation. Therefore, this paper takes the evolution of China's coal power reform policy as the entry point for research, reanalyze the cost composition system of coal-fired power and summarize its impact on the cost of coal-fired power, and puts forward suggestions on cost control in the dimension of sustainable development of coal power, which provides an effective reference to the planning and deployment of solving the predicament of transitioning coal power and narrowing down the profit loss.

Highlights

• •Review and sort out relevant literature on the composition of coal and electricity costs.
• •Summarize the impact of policy evolution background on the cost control efficiency.
• •Provide an outlook for the stable transformation of future coal and electricity enterprises.
• •Propose a new composition of coal electricity cost and introduce an understanding of carbon cost transmission, laying the foundation for future research on coal electricity -cost price linkage.

1. Introduction

The dual carbon goals and requirements for building a new power system in China have further stimulated the development of large-scale new energy. According to the national power industry statistics released by the National Energy Administration, as of the end of December 2023, the installed capacity of wind power and solar energy generation were 440 million kilowatts and 610 million kilowatts, respectively, ranking first in the world. From this, it can be seen that the direction of the transition from clean to clean power supply has become a foregone conclusion. New energy sources such as wind power and photovoltaic have natural intermittency and volatility, and the large-scale development of wind and solar new energy brings serious challenges to grid integration and consumption. Many experts and scholars believe that China's coal dominated energy structure determines that coal-fired power has become a key type of power source supporting the consumption of new energy, and will continue to play an irreplaceable basic and strategic role in the energy transformation process. However, it still faces the following problems in its development process.

Firstly, coal prices remain high for a long time; Secondly, the increase in coal-fired power costs has led to sustained losses for enterprises; Thirdly, the requirements for ensuring coal power supply have been raised. To address the above issues, the country has formulated a series of policies to alleviate the impact of rising coal prices and costs on coal-fired power generation.

To sum up, exploring the composition of coal power costs and perfecting the coal power price formation mechanism have become the key to deepening the market-oriented reform of coal power and coordinating the gaming relationship between coal and electricity enterprises during the “14th Five-Year Plan” period. The construction of coal power cost system, and its strict control, has become the first step to ease the future of China's coal power cost - price road. Under the constraint of double carbon target, coal power with high carbon emission is facing severe challenges. In order to support the stable operation of the new power system, coal power must be transformed into clean, efficient and flexible power through energy-saving and carbon-reducing transformation, heat supply transformation and flexibility transformation. In the process of continuous policy change and evolution, focusing on the construction of the cost system of coal power, the formulation of cost and price issues in the transition process and the maintenance of the survival of the enterprise to maintain the ability to supply has a crucial role. At the same time, with the current broadening of the boundaries of the cost nature of the boundaries of the cost1is also more and more fuzzy, these factors also make the exploration of the cost components of coal and electricity has become more complex.

Based on this, the innovation of this paper is to take the evolution of China's coal power reform policy as the entry point of the study, review the relevant literature on the cost composition of coal power under the perspective of policy evolution, sort out and build the cost composition system of coal power, and put forward suggestions on the cost control of coal power in the dimension of sustainable development, which will provide an effective reference to the planning and deployment of solving the dilemmas of transition of coal power and narrowing the profit loss, and is of great significance for the current transformation and sustainable development of coal enterprises and electric power enterprises (especially the traditional coal power industry). It is of great significance to the transformation and sustainable development of coal and power enterprises.

The second part of this article reviews the cost of coal-fired power generation from the perspective of policy evolution through literature review. It elaborates on the important impact of policy evolution on the cost structure of coal-fired power generation, proposes a new structure of coal-fired power generation cost under the background of dual carbon goals, and decomposes carbon costs in detail. The Tobit econometric regression analysis model is selected to analyze the correlation and degree of correlation between costs and various cost elements. The real-time cost calculation results of each unit are calculated using cost analysis and calculation tools, providing important reference for coal power enterprises to take targeted measures to implement cost control. The third part outlines the impact of policy evolution on cost control of coal-fired power generation. The fourth part conducts a more detailed study on its future work from the perspectives of “smoothing the cost and price mechanism of coal-fired power” and “strengthening the cost control ability of coal-fired power”, closely combining the main theme of China's coal-fired power cost and control research from the perspective of policy evolution in this article.

2. Cost composition of coal power from the perspective of policy evolution

2.1. Evolution and research review of coal electricity reform policies

Since 2004, the benchmark grid electricity price and coal electricity price linkage mechanism for coal-fired power generation have gradually been established, and have become an important benchmark for the formation of grid side electricity prices. In the research on the reform of coal electricity pricing mechanism, Jin Jiren (2005) pointed out that electricity pricing reform must be coordinated with other reforms of the power system, such as the reform of market trading mode, market progress, market layout, restructuring of power generation enterprises, and institutional configuration of electricity pricing regulation. In 2018, the Central Economic Work Conference also explicitly requested to enhance the degree of market-oriented electricity trading. At the same time, the relevant documents of the Party Central Committee and the State Council on electricity system reform and price mechanism reform also clearly stated that we should adhere to the principle of “controlling the middle and opening up the two ends”, and orderly open up competitive electricity prices beyond transmission and distribution. To improve the mechanism for forming coal and electricity prices, it is necessary to take into account the changes and adjustments in upstream coal price management methods and formation mechanisms. As of 2019, the reform of transmission and distribution electricity prices has achieved full coverage, and the pricing mechanism of “allowable cost + reasonable income” has been basically established. The scale of market-oriented electricity trading in various regions is constantly expanding, and about 50 % of the electricity prices for coal-fired power generation have been formed through market trading, and the spot market has begun to be established. Zhang Yanfang [1] found that the fluctuation of coal prices in China is a result of spontaneous regulation and government intervention in the coal market, and suggested that the government should objectively evaluate the short-term and long-term effects of contract policies on suppressing coal prices, flexibly choose policy tools and jointly release methods to improve the forward-looking level of policies. Yu Haipeng [2] found that the policy coefficient indirectly affects the benchmark electricity price and floating price through the adjustment amount of coal electricity price policy, proving that the implementation method of the policy has a significant impact on the implementation effect. When formulating coal electricity price policies, it is necessary to consider market flexibility and energy security. Qin Chenghua et al. [3] pointed out that in the second half of 2021, there was an abnormal and significant increase in coal prices in China, leading to a serious deviation in cost prices. Therefore, it is necessary to explore and establish an adjustment mechanism based on cost to determine the reasonable operating range of coal prices as soon as possible. By the end of June 2022, the trial operation of inter provincial spot trading will be implemented, and the trial operation of the southern regional electricity market will be launched. Zou Shaohui et al. [4] suggested that the government should scientifically regulate the “benchmark price” of coal and strictly manage the coal price regulation fund; The China Coal Center trading platform should increase and improve the quantity and quality of invitations for medium and long-term contracts, expand the spot bidding and trading model, and create a complete coal market. Guo Huidong et al.[5] established a profit model of thermal power plants in the market environment, we discuss the carbon emission reduction effect of carbon price and spot price synergy, and find that under the rational and fully competitive spot power market environment, the carbon market using the “tradable performance standard” quota distribution mechanism can reduce the spot market clearing price to a certain extent. Xi Shuangyuan et al. [6] pointed out that in order to continuously ensure the demand for coal for power generation and heating, it is necessary to study and introduce a trading price mechanism that links the coal market and the electricity market in areas where coal power enterprises suffer significant losses, compensate for the reasonable cost of power generation, and take multiple measures to alleviate the urgency of coal burning.

The evolution of reform policies is divided into three major stages, as shown in Fig. 1.

Fig. 1.

Evolution of China's coal and electricity policy reform policy.

Comments: In summary, it can be clearly seen from the evolution of the entire coal-fired power reform policy that since the implementation of the “new electricity reform” in 2015, coal-fired power enterprises have faced the risk of increased costs and decreased profits, which has led to a decrease in their willingness to generate electricity and affected the security of power supply. At the same time, the profitability of coal-fired power enterprises has declined, leading to the grounding of trillion level assets, which in turn has a negative impact on the asset quality of enterprises and financial institutions, causing credit default risks and affecting financial stability. In addition, the mechanism of electricity price formation and cost transmission is not yet mature, and local governments often intervene in the market too much with their “tangible hands” to promote and lead market-oriented reforms in order to maintain local interests.The reason behind this is that the coal-fired power industry has suffered significant losses due to the rapid rise in fuel prices, and the mechanism of electricity price formation and cost transmission has not been truly rationalized. That is, coal prices follow the market, but the upper limit of the range of electricity price changes is strictly limited, resulting in a blockage in the cost transmission mechanism of prices. The huge pressure on fuel costs cannot be transmitted downstream in a timely manner, and ultimately it is mainly digested by coal-fired power enterprises. Under the significant impact of coal prices, the cost and price of coal-fired power generation are severely inverted, and the marginal contribution continues to decrease or even be negative, resulting in a situation where the larger the power generation, the more losses there are, and some enterprises have abnormally tight cash flow.

In this context, the profit margin of coal-fired power generation is squeezed by high coal prices and low electricity prices, which is insufficient to ensure basic income, resulting in large-scale losses for coal-fired power generation enterprises and an increasingly severe business situation. In fact, every policy evolution will invisibly change the original cost structure of coal-fired power, which provides a basic motivation for cost control of coal-fired power. Therefore, the following text will continue to start from the understanding of the cost composition of coal-fired power, and further elaborate on the important impact of policy evolution on cost control of coal-fired power through a deep analysis of the cost composition of coal-fired power.

2.2. Research on the cost composition of coal electricity

Due to the significant characteristics of electricity commodities that differ from ordinary commodities, the design of the electricity spot market is significantly different from that of the ordinary commodity spot market. In the electricity spot market, real-time bidding is commonly used for trading coal and electricity products, that is, based on real-time costs, selecting and adopting the optimal pricing scheme from a variety of available options. The existing research results mainly focus on the traditional cost calculation of coal-fired power, as well as the design and application of coal-fired power price calculation methods in single or dual markets. It has formed a good theoretical foundation in coordinating the interests of all parties in the power system. However, most literature does not include the possible costs that may arise in the future transformation process of coal-fired power, especially the carbon costs generated by carbon trading. To make up for the omissions in existing literature, this article has collected a large number of literature related to the carbon cost of coal-fired power plants, and conducted a detailed review and analysis of carbon cost related content such as the definition of carbon cost, carbon cost transmission, and carbon cost research perspective, which are commonly found in the current academic community. In order to explore the cost control system of coal-fired power plants under the dual carbon goal, construct a coal power cost management system considering new costs under multiple functional positioning, and consider the spot market the electricity price calculation models for medium to long-term trading markets and auxiliary service markets provide a theoretical research framework that can be used for reference.

2.2.1. Carbon costs

Regarding the understanding of carbon costs, foreign scholars have been conducting research relatively early and have a relatively mature understanding of carbon costs. Gray R (1993) believes that carbon costs include all costs that have occurred or may occur in the production process of power products from a life cycle perspective. Ratnatunga (2008) believes that in the context of the Kyoto Protocol, carbon emission efficiency will have a significant impact on the costs and benefits of enterprises. It is necessary for enterprises to account and manage carbon costs, and extend the accounting and management of carbon costs to the entire product life cycle, while also raising the level of enterprise strategic management. Shiloh (2012) pointed out that the carbon cost of enterprises is the cost of low-carbon protection, namely the cost of spill handling and pollution prevention, the carbon cost of waste raw materials, and the carbon cost of waste capital and labor. Although the research on carbon costs started relatively late in China, with the proposal of the dual carbon goal and the gradual attention of enterprise decision-making departments to carbon information, the understanding and research on carbon costs in China have gradually deepened in recent years. Wang Yitong [7] defines carbon cost: broadly speaking, carbon cost is based on the product life cycle, including the cost of carbon emissions generated by product production, manufacturing, logistics, use and disposal, and the resulting compensation and other aspects. According to the definition, carbon costs can be broadly divided into prevention costs, carbon emission costs, carbon governance costs and carbon trading costs, where prevention costs, carbon emission costs and carbon governance costs are internal costs and carbon trading costs are external costs. Wang Biyao [8] subdivided the concept of carbon cost and considered that carbon cost is the relevant cost expenditure due to the occurrence of activities related to carbon emission, i.e., due to the emission of pollutant gases into the environment in the process of production and operation of enterprises, which causes losses and damages to the environment, and all the costs incurred by enterprises for the purpose of prevention in advance, control in the middle of the process, and restoration after the process, as well as the purchase of the remaining quota due to the excess emissions. Mi Zitian [9] defines the cost of carbon from the perspectives of society as a whole and environmental costs. It is considered that the cost of carbon to society as a whole is the damage caused by each unit of carbon dioxide emissions that exceeds the acceptable level of the natural environment on average, which is expressed in terms of economic value. Based on the perspective of environmental cost, it is the cost incurred by companies that generate carbon dioxide for environmental impacts in carrying out management activities, the cost incurred by taking appropriate measures, and other costs incurred to reduce carbon dioxide emissions. In addition, carbon cost is a kind of cost that can be accurately measured in money and attributed among different subjects, the core of which is carbon emission, carbon emission activities are responsible for the subject, to be the subject of responsibility as the object of cost attribution. Zhang Caiping et al. [10] based on the rate of conservation of quality in the flow of substances, based on the flow of carbon in the production process of the enterprise in all aspects of the flow of carbon, the use of the gradual carry-over step-by-step method in the step-by-step method of product costing in accounting, the measurement of carbon elements in money, the construction of the “carbon flow-value flow” two-dimensional Carbon cost accounting model and apply it to iron and steel enterprises. Guo Ting [11] takes electric power enterprises as the case study object, and studies the application of the whole life cycle assessment method (LCC) in carbon cost accounting.

Comments: Domestic and foreign scholars have analyzed and studied the connotation of carbon cost from multiple perspectives, including internal and external perspectives of enterprises, as well as the timing and timing of carbon emissions. However, most of them emphasize that carbon cost occurs throughout the entire production process of products, and carbon emission cost is an important component of carbon cost. Overall, existing research results mainly focus on the traditional cost calculation of coal-fired power, as well as the design and application of coal-fired power price calculation methods in single or dual markets. A good theoretical foundation has been formed in coordinating the interests of all parties in the power system, but there is a lack of literature to analyze the new transformation costs of coal-fired power under different functional positioning. To make up for the shortcomings of existing research, this article establishes a comprehensive consideration system for the traditional cost and new transformation cost of coal-fired power. In the context of vigorously promoting carbon reduction, it lays the foundation for improving the efficiency of coal-fired power cost control in the later stage, and also provides effective reference for the mechanism of coal-fired power price formation. Fig. 2 shows the cost composition system of China's coal-fired power industry under the consideration of dual carbon goals, which is constructed in this article.

Fig. 2.

Composition of coal electricity cost under the “dual carbon” target.

2.2.2. Carbon cost transmission principle

Through the study of the cost composition system of coal-fired power in the previous text, it was found that the addition of transformation costs is an important component of the cost structure of coal-fired power in the context of carbon reduction, and carbon costs are also the most distinctive part of the added costs compared to traditional cost systems. As is well known, the global carbon emissions problem mainly stems from the use of fossil fuels, especially fossil fuel power generation, which accounts for about 50 % of the total global carbon emissions. Carbon costs will greatly affect the operating status of systems and the proportion of various power sources. However, at the same time, the power industry must also ensure the basic support for the entire economy, and the most important thing is to ensure sufficient and safe power supply. In addition, due to the important position and role of the power industry in carbon reduction, another important aspect of carbon costs is its transmission to electricity prices. So, how the carbon pricing mechanism guides the transformation of the power industry while adapting to its unique characteristics has become a core consideration for achieving the dual carbon goal. Therefore, this article further studies the literature on the transmission of carbon costs to electricity prices.

From the perspective of definition understanding, current scholars have not formed a unified view on the definition of carbon cost transmission. Based on existing research, six representative definition explanations can be sorted out. Overall, these six definitions demonstrate different levels of understanding of carbon cost transmission, ranging from broad to narrow. The broad definition explains the comprehensive impact relationship between carbon price and electricity price, which has a relatively more general equilibrium theory meaning. It needs to consider a variety of other prices, which is of direct significance for analyzing the equilibrium relationship between carbon price and multiple related market prices. The narrow definition is based on the net marginal cost or carbon marginal cost, which can directly reflect the allocation of carbon costs, and has a relatively more partial balanced meaning. It is of direct significance for analyzing the profitability and carbon emission reduction behavior of power generation companies. In addition, some literature also interprets the narrow definition as a special relationship between carbon price and electricity price. However, this distinction also brings about differences in understanding two definitions, namely carbon cost and carbon price. Therefore, when defining carbon cost transmission, different understandings will lead to different ways of defining it, and the corresponding parameter meanings, research methods, perspectives, etc. will also be different.

• (1)The classical definition of carbon cost transmission is the ratio of the change in equilibrium price to the change in marginal cost. Using this definition requires a large amount of micro data to adequately identify information on marginal costs, and it is also difficult to determine the actual change in net marginal costs as a result of changes in carbon costs, especially when taking into account the operational characteristics of the coal power market, such as the scheduling order of generating units, which may change as a result of the carbon price. As a result, this definition has had little application in cost management practice.
• (2)Defined in terms of the ratio of the change in equilibrium price to the change in the cost of carbon, this definition takes the cost of carbon as the starting point, reflecting how much of the cost of carbon is passed through to the price of electricity, and is currently the most widely used in empirical studies, with many of them use this transformation to convert the price of carbon into the cost of carbon.
• (3)Defined in terms of the ratio of the change in spread to the change in carbon costs, the so-called spread is the difference between the price of electricity per unit of electricity and the cost of the corresponding fuel inputs (coal, natural gas, oil, etc.) and is a commonly used indicator of the profitability of power generation. Compared to the previous understanding, this definition limits the way power generators behave but implicitly assumes that carbon pricing does not affect the price of upstream inputs in the market of the firms' inputs, and so it may distort the results of the measurements of the transmission of carbon costs, but under the constraints of the data, the understanding of the use of such a definition can still provide a valuable reference.
• (4)Defined in terms of the ratio of the change in equilibrium price to the change in carbon price, this understanding takes the absolute carbon price as a starting point and reflects not the rate of transmission in the strict sense, but rather the marginal emissions intensity, the true meaning of which is how much of the carbon emissions from the electricity sold transmits the carbon cost.
• (5)Defined in terms of a long-run equilibrium change relationship, it strictly reflects the long-run equilibrium relationship between the carbon price and the electricity price. This definition is closely related to the choice of methodology for carbon cost studies, and studies using this definition have often chosen time-series models, particularly vector error correction models, to examine whether changes in carbon prices will maintain a stable equilibrium relationship with changes in electricity prices over the long term.
• (6)Defined in terms of the elasticity of carbon cost transmission, the ratio of the percentage change in carbon price to the percentage change in electricity price. This type of definition is more common in the field of international trade where exchange rate pass-through is studied, although it is also used in studies of carbon cost pass-through to electricity prices.

In conclusion, there are relatively more studies on the rate of transmission because it provides a relatively intuitive representation of the impact of the transmission relationship on the carbon and electricity pricing mechanisms, thus facilitating the clarification of the problems with each other and the direction of improvement, as shown in the table below (see Table 1).

Table 1.

Different definitions and representative Scholar calculation results of carbon cost transmission.

Definition	Representative Scholar	Calculation results
(1)	Bonacina & Gull	0%–150 %
	Fabra & Reguant	21.8%–81.3 %(Spanish Electricity Spot Market)
(2)	Lise et al.	70%–90 %
	Kim et al.	−317%–278 %
	Fabra & Reguant	45.3%–104.5 %
(3)	Sijm et al. Frontier Economics Sijm et al. Chernyavs'ka & Gulli Chernyavs'ka & Gulli Jouvet & Solier Nazifi Nazifi et al.	39%–73 % <100 %(Germany, Netherlands) 68%–173 %(Germany Electricity Spot Market) curve,60%–160 %(Italy) curve,0%–200 %(Italian partition) 10%–228 %(Medium and Long Term Electricity Markets in the Ten EU Countries) 101%–132 %(Australia Electricity Spot Market) 97%–290 %(Australia Electricity Spot Market)
(4)	Bauer & Zink	0.52t/MWh
	Levy	0.48–1.84t/MWh
	Dagoumas & Polemis	0.637–1.112t/MWh
(5)	Juha Honkatukia et al.	93 %
	Bunn & Fezzi	42 %
	Fezzi & Bunn	32 %
	Pinho & Madaleno	13 %
	Freitas & da Silva	51 %
	Freitas & da Silva	24 %
(6)	Thoenes	0.745–0.906(carbon price)
	Ahamada & Kirat	0.19–0.21(carbon price)
	Fabra & Reguant	0.094–0.146(carbon price)

From the perspective of measuring carbon cost transmission, existing research has mainly focused on empirical research, and the empirical results also show significant differences. There are two main methods for research: technical and economic optimization simulation and econometric analysis models. Nazifi et al. [12] pointed out that fluctuations in electricity prices at different particle sizes can be explained by user behavior without the need for additional treatment. However, due to the high requirement for the richness of sample information in structural econometric models, especially for micro data, some scholars have explored extending the calculation of carbon cost conductivity from time series models. At present, research on time series models mainly focuses on examining the long-term dynamic equilibrium relationship between carbon price changes and electricity price changes, generally considering the price interaction between multiple related markets. In theory, changes in carbon prices not only affect electricity prices, but also impact upstream fuel market prices, and these effects will be fed back into carbon price changes, allowing for consideration of price interrelationships among multiple markets. Meanwhile, the attention of time series models to structure also reflects the price relationship between market systems.

From the perspective of practical application research, Ma In N [13] research on the transmission of carbon costs to the overall output price of the industry, some of it involves the transmission to electricity prices. Li Xuehui et al. [14] focus on carbon cost transmission, which has a more direct guiding role in understanding, designing, evaluating, and improving carbon pricing mechanisms, electricity market mechanisms, etc. At the same time, the structure, model, regulatory policies, and renewable energy development mechanism of the electricity market will determine the emission reduction effectiveness and social welfare of the carbon pricing mechanism. All these mechanism designs should enable carbon emission stakeholders on both supply and demand sides to reasonably share environmental and social costs, thereby effectively promoting common transformation, and carbon cost transmission research is the most fundamental basis for determining how to achieve reasonable sharing.

Comments: Through the analysis of literature, it can also be found that research on carbon cost transmission will inevitably advance towards a more extensive and in-depth direction. Firstly, as more and more countries adopt market-oriented carbon pricing mechanisms to achieve greenhouse gas emissions reduction, the transmission of carbon costs is crucial to the effectiveness of the carbon pricing mechanism, which will inevitably attract more and more scholars to pay attention to the research on carbon cost transmission; Secondly, due to the complexity of carbon cost research itself, there are still many shortcomings and shortcomings in existing research on carbon cost transmission, which leaves room for future research; Once again, there are many ways to define and calculate the carbon cost transmission rate, which makes the research conclusions relatively lack comparability and limits the practical value of carbon cost transmission in guiding carbon market design; Finally, there is currently a lack of research on incorporating the adjustment of investment and operation behavior by carbon emitting entities into the scope of carbon cost transmission research at the micro level. Although it is difficult to obtain micro data at the enterprise level or even at the unit level, relevant theoretical issues still have important mining and research value.At present, the research on carbon cost transmission in China has significantly lagged behind domestic policy practice. Against the background of accelerating the construction of carbon markets, discussing the possibility of carbon taxes, and deepening the reform of the power system, practical policy practice has put forward an urgent need to deepen the research on carbon cost transmission to electricity prices. Especially with the release of the⟪Notice on further deepening the market-oriented reform of coal-fired power generation grid electricity prices⟫in October 2021, the institutional barriers to the transmission of carbon prices to electricity prices have been further eliminated. Although the dual track electricity pricing system still exists, with the acceleration of the electricity market process, it will effectively promote the coupling and connection between the carbon market and the electricity market, providing a good market environment for the transmission of carbon costs. Therefore, in the future, research on carbon cost transmission based on the Chinese carbon market will undoubtedly become more and more mature.

3. The impact of policy evolution on coal electricity cost control

3.1. Research on the impact of policy evolution on coal electricity cost control

In terms of empirical research on the impact of policy evolution on the cost efficiency of coal-fired power enterprises, most literature adopts the commonly used Stochastic Frontier Analysis (SFA) as a cost data measurement method, and then sets a cost frontier model using the Cobb Douglas function. We selected the prices of labor, capital, and energy (coal prices) as input indicators, with income as the only output indicator, and conducted descriptive statistics on this. At the same time, a multiple regression model was constructed and empirically tested on the influencing factors of cost efficiency for all enterprises (debt paying ability, profitability, growth ability, innovation ability, and enterprise size). In order to further test whether policy evolution has affected the cost efficiency of coal and electricity enterprises, D₂₀₁₅ (policy evolution) was introduced as a dummy variable to construct a comprehensive model. According to the results of descriptive statistics, it can be found that the five major power generation groups in China's coal-fired power generation industry occupy an absolute market share. This phenomenon is not a market structure formed by long-term competition, and one possible explanation is the result of administrative power participating in resource allocation. From this, it can be seen that the market process of China's coal-fired power generation industry still needs to be strengthened. At the same time, the state-owned property rights ratio also proves that China's coal-fired power generation enterprises have a relatively high proportion of state-owned shares, and their asset liability ratio is generally high. High leverage operation is the norm for coal-fired power enterprises, with the average total asset return rate far lower than the one-year loan interest rate of banks, and the returns cannot even cover the cost of capital. The sales revenue growth rate continues to be low, which verifies the New Normal characteristics of China's coal power product consumption. The sales growth is weak, the R&D intensity is low, the proportion of R&D expenditure is low, and the coal power enterprises lack the endogenous power for active innovation. At the same time, the regression model results of cost efficiency also show that the absolute position of energy prices in the cost structure of coal-fired power enterprises. When the input indicators increase by one unit, the total cost of the enterprise will significantly increase by different units.

Since 2015, the average efficiency values of the sample enterprises have mostly shown a continuous decline. On the one hand, it indicates that with the continuous deepening of policy evolution, the cost efficiency of coal-fired power enterprises has not been improved, but has slightly decreased. Due to the serious dependence of coal power enterprises on downstream industries, it is not difficult to find that with the increasingly prominent characteristics of the New Normal of economic development, the input-output indicators have not achieved a synchronous decline, resulting in a downward trend in the cost efficiency of coal power enterprises. On the other hand, empirical results also show that a highly concentrated market structure is not conducive to improving the efficiency of cost control for coal-fired power enterprises. The special connection between coal power enterprises and the government directly leads to the lack of sufficient technological innovation and cost reduction driving force in the market environment directly dominated by the government, and cost control efficiency has become a lack of incentive management work. It can be seen that the in-depth reform of the property rights system is of great significance in forcing coal and electricity enterprises to improve cost control efficiency. In addition, the evolution of policies has not effectively improved the cost control efficiency of coal-fired power enterprises, and even had a certain negative impact on the cost efficiency of enterprises.

In the context of policy evolution, coal power enterprises are facing more severe input-output pressure. Simply implementing industry policy systems may not greatly improve the efficiency of cost control. In addition, the implementation of the new electricity reform is still short, and coal power enterprises have not fully absorbed the impact of policy reform. These have put forward more stringent requirements and challenges for cost control of coal power enterprises.

3.2. Cost and control challenges for coal-fired power enterprises from the perspective of policy evolution

The cost of coal-fired power has remained high for a long time, but the electricity price of coal-fired power is still subject to national regulation. In response to the increasing costs year by year, the National Development and Reform Commission has introduced a series of policies to stabilize prices and ensure supply since February 2022, which has to some extent alleviated the operational difficulties of coal-fired power enterprises. Currently, the grid electricity price of coal-fired power generation enterprises is a market-oriented electricity price mechanism of “benchmark price + up and down fluctuation”, and the fluctuation range is generally not more than 20 %.

At present, the benchmark price of coal-fired power generation in various regions of the country was determined in 2019, and the benchmark price is determined based on the benchmark grid electricity price of coal-fired power generation in various regions. At that time, the corresponding calculation was that the price of 5500 KCAL of underground coal in Qinhuangdao Port was 535 yuan/ton. However, since 2021, the price of electric coal in China has remained high for a long time. Since 2022, the price of electric coal has continued to be above 800 yuan/ton, and the coal price has risen. However, the benchmark price of coal-fired power has not been adjusted accordingly, which will result in the current benchmark price not fully reflecting the actual power generation cost. Meanwhile, the new mechanism sets a range of upward and downward fluctuations, making it difficult to timely reflect changes in fuel prices and market supply and demand. Since the implementation of electricity price reform, the transaction prices in multiple electricity markets have achieved a top 20 % increase. The average bilateral transaction prices in Jiangsu, Shaanxi and other regions in 2022 have also approached the top grid line. This phenomenon indicates that a 20 % fluctuation range below the current benchmark price level may not reflect the true market situation, resulting in a ceiling reaction when the upper limit is reached. Therefore, it is necessary to pair and adjust the current benchmark price with the fluctuation range.

The huge cost pressure of coal-fired power cannot be transmitted downstream in a timely manner, mainly digested by coal-fired power enterprises. Under the significant impact of coal prices, the cost and price of coal-fired power companies are severely inverted, and their marginal contribution continues to decrease or even be negative, resulting in a situation where “the more they earn, the more they lose”, and some companies have abnormally tight cash flow. Since September 2021, there has been a significant increase in coal prices nationwide, with power coal prices repeatedly reaching historic highs. On the one hand, the bare price of coal is high, and the price of coal at the mine entrance continues to rise; On the other hand, for many coal-fired power companies, coal procurement and transportation distances are long, shipping costs are expensive, and transportation costs continue to rise. The long-term contract fulfillment rate of coal in the coal-fired power industry is low, and its contract signing rate and price policies have not been effectively implemented, and the market coal prices remain high. The average unit price (including tax) of standard coal per ton for the five major power generation groups in 2021 exceeded 1000 yuan, and the rise in electricity coal prices led to a decline in net profits for the enterprises. Coal power has suffered a comprehensive loss, with a record breaking amount of losses. Due to the significant increase in the unit price of standard coal entering the factory (60 %), the relationship between coal and electricity prices has been extremely distorted. As of October 2021, the highest loss area of coal and electricity enterprises in China was nearly 100 %, and it still exceeded 80 % at the end of the year. The total loss of coal and electricity enterprises in China for the whole year exceeded 300 billion yuan. Among them, the five major power generation groups suffered a loss of 108.3 billion yuan in coal-fired power generation, with a total loss of 136 billion yuan in the heating sector. This not only significantly reduced profits by 160.9 billion yuan compared to 2020, It also exceeded the cumulative loss of coal-fired power from 2008 to 2011 by 92.1 billion yuan. Since 2022, the price of electric coal has remained above 800 yuan/ton. From January to September 2022, the coal-fired power generation group's on-site electricity price (equivalent to 5500 KCAI) was around 865 yuan/ton, and the cost of electricity per kilowatt hour was about 0.48 yuan/kilowatt hour. The total loss of coal-fired power units in the first three quarters of the country was nearly 95 billion yuan, seriously affecting the survival and development of coal-fired power enterprises.

The fundamental reason for the significant losses suffered by coal-fired power enterprises in the context of rapidly rising fuel prices is that the mechanism of price formation and cost transmission has not been truly “connected”, that is, coal prices follow the market, but the upper limit of the range of electricity price changes is strictly limited, resulting in a blockage of the transmission mechanism of prices. In this context, the profit margin of coal-fired power generation enterprises is squeezed by high coal prices and low electricity prices, which is insufficient to ensure the basic income of power plants, resulting in large-scale losses for coal-fired power generation enterprises and an increasingly severe business situation.

4. Conclusion

In short, every evolution of coal-fired power policies will bring about a fusion of its cost structure, causing coal-fired power companies to suffer losses year after year despite the rapid rise in fuel prices. The reason for this result is that policy changes have caused the failure of cost price linkage, that is, coal prices follow the market, while the upper limit of electricity price changes is strictly limited, resulting in a blocked transmission mechanism of prices. Through the evolution of policies, this article summarizes their impact on the cost of coal-fired power in the following aspects.

4.1. Coal prices will fluctuate with policies

Due to the government's regulations and restrictions on coal-fired power grid electricity prices, changes in coal prices have a greater impact on the profits of coal-fired power enterprises. The proposal of the “dual carbon” goal gradually limits the production capacity of coal, bringing huge challenges to the coal industry. In the future, with the withdrawal of coal-fired power units, the rise of clean energy generation, and the promotion of the “Dual carbon” goal, the demand for coal in the power industry will significantly decrease, and coal prices are expected to show a fluctuating downward trend. The impact on the cost of coal-fired power will also vary.

4.2. Carbon trading prices are becoming increasingly expensive

Nearly 70 % of China's carbon emissions come from coal, among which the coal consumption of the coal power industry is the highest in the industry. Therefore, the coal power industry is an industry where the government focuses on promoting carbon emission reduction, and it was first included in the carbon emissions trading market. Therefore, carbon trading prices are an important factor affecting the costs of coal-fired power enterprises, and with the advancement of the “dual carbon” goal, the impact of carbon trading prices on coal-fired power costs is becoming increasingly significant.

4.3. The linkage cost of the three reforms continues to increase

Carrying out the “Three reforms and linkage” of coal-fired power is an inevitable requirement for building a new type of power system and achieving clean and low-carbon energy development. The relevant funds and preferential policies provided by the government only play an auxiliary role in the cost recovery of coal-fired power transformation, and the final transformation cost will be recovered through power generation revenue. Therefore, the cost of transformation is an important component of the cost of coal-fired power in the context of its transformation and exit. In the future, with the promotion of the “Dual carbon” goal and the transformation of coal-fired power plants, the supportive policy mechanism for the “Three transformations” will gradually improve, and the impact of the cost of coal-fired power plant transformation on the cost of coal-fired power enterprises will also vary.

5. Policy suggestion

In this paper, through the review and combing of relevant literature on the cost composition and cost control efficiency of coal power plants from the perspective of policy evolution, we have gained a new understanding of the cost composition of coal power plants, and at the same time, we have put forward some suggestions and outlooks on the future of coal power plants in response to the policy evolution, participation in the market competition, and the pursuit of a sustainable and smooth transition.

5.1. Unblocked coal electricity cost and coal electricity price mechanism

5.1.1. Recently: improve the “benchmark Price + Fluctuation” electricity price mechanism

This article proposes to first implement a linkage adjustment mechanism for coal-fired power benchmark prices, and then implement an upward and downward floating mechanism under the significant impact of the market on coal-fired power enterprises. This means implementing a normalized strategy for the linkage change mechanism of coal-fired power benchmark prices, and implementing a contingency strategy for the upward and downward floating mechanism of coal-fired power prices. The optimization of the fluctuation range of coal-fired power prices is specifically manifested in the rapid increase of coal prices or transportation costs in the short term, Local governments can notify enterprises to carry out up and down floating quotations, and the floating mechanism will still maintain the current range of up and down 20 %, ensuring that the market and government play a full role in the price formation process. As mentioned earlier, in the context of continuous decline in utilization hours but continuous increase in comprehensive trading prices of thermal coal, coupled with the fact that adjusting the benchmark price of coal-fired power is a long-term and complex assessment process, measures such as adjusting the floating mechanism and not changing the benchmark price can be taken in the short term. Considering the current situation of widespread losses in coal-fired power enterprises, it is recommended to increase the floating ratio, with a floating range of [20 %, 50 %], To ensure the sustainable development of coal-fired power enterprises. The calculation formula is as follows:

$$P_{\text{ce}}*\left(1+\mathrm{r}\right)=C_t$$

In the formula, $P_{\text{ce}}$ is the benchmark price of coal-fired power in each province, “r” is the fluctuation ratio of coal-fired power price, and $C_t$ is the total cost of the enterprise. The principle of this formula is that when coal-fired power enterprises break even, “r” is the optimal floating ratio, and other regions can determine the floating range according to their own situation to ensure the sustainable development of the enterprise.

5.1.2. Mid term: establish a capacity compensation mechanism and pilot a two part electricity price system

In terms of electricity consumption, encourage all coal-fired power units to participate in market-oriented trading. The electricity price is based on the national mechanism for the formation of coal-fired power grid electricity prices, with continuous and moderate adjustments to the benchmark price and upward and downward floating standards. It is formed through market transactions, fully leveraging the role of market discovery prices to effectively connect the formation of electricity prices with the construction of the electricity market, and promoting the process of market-oriented reform of the electricity system in coordination. In terms of capacity, based on the actual situation of the power generation supply side and demand side, combined with the requirements of power system reliability, carefully determine the capacity compensation mechanism and two-part electricity pricing mechanism, and combine the functional positioning of coal-fired power at different periods to gradually deepen differentiated capacity compensation and capacity pricing reform in stages and regions.

5.1.3. Long term: comprehensive Establishment of coal power capacity market

Specifically, the smooth advancement of the capacity market requires high requirements, such as accurate demand forecasting, high level of information disclosure, and strong market supervision capabilities. Therefore, it is necessary to introduce corresponding supporting measures to ensure the smooth and effective development of the capacity market. Firstly, enhance market forecasting capabilities. The capacity market requires market operating agencies to set long-term capacity demand and short-term reserve demand. If demand forecasting is not accurate, it will bring incorrect directions to the market. We should strengthen the accumulation of relevant historical data and theoretical and experiential reserves to ensure the normal operation of the capacity market. Secondly, efforts should be made to improve the transparency of market information, requiring market operators to provide long-term supply and demand information, providing reference for power generation enterprises to quote capacity, and supporting a long-term adequacy evaluation mechanism, which should be released in a timely manner. Thirdly, strengthen market monitoring, strictly monitor market power in response to market quotations and clearing, and prevent market entities from abusing market power, disrupting market order, damaging social welfare, and affecting the stable operation of the capacity market.

5.2. Strengthen the cost control capability of coal-fired power generation

5.2.1. Cost refinement management

In response to the gradual transformation of coal-fired power enterprises and the continuous decline in coal-fired power prices in the market environment, efforts are being made to promote cost refinement management within the enterprise. Starting from strengthening basic management and refining technical standards, we will establish and improve a refined management system for operations through small indicator competitions, operational position evaluations, and other means. Distribute quantitative indicators for each link to the basic level of each operation center and strictly implement assessment, strengthen basic management, strictly control various expense expenditures, clearly divide various operation processes, reduce cost accounting units, and form cost accounting teams composed of personnel from various departments of the enterprise as much as possible. In order to achieve precise control, monitoring and adjustment should be carried out at any time throughout the entire production and operation process until the power generation is completed and sold, The refinement of costs throughout the overall business process of coal-fired power enterprises and the clear definition of cost expenditures on various operations are necessary conditions for promoting cost control refinement.

5.2.2. Reduce coal procurement costs

Firstly, actively sign long-term contracts with upstream coal production enterprises. Due to the long supply cycle of long-term coal contracts, the price of long-term coal is significantly lower than the spot coal price during the same period. Signing a long-term coal contract can effectively reduce coal costs, optimize transportation capacity allocation, and reduce transportation resource waste.

Secondly, use the coal price optimization model to guide procurement and select the lowest coal procurement price. Establish a coal price optimization model with the goal of minimizing the unit price of standard coal entering the factory and the main coal quality indicators for annual or monthly procurement as constraints. Calculate the proportion and quantity of coal supplied by each supplier, formulate annual and monthly coal procurement plans, and change “pricing based on incoming coal” to “selecting coal based on price".

Thirdly, buy Far Moon thermal coal futures contracts. By buying distant futures contracts and locking in coal prices at lower prices in advance, the cost of coal procurement can be reduced. At the same time, establishing virtual inventory to lock in coal inventory with lower margin can further reduce the cost of capital occupation.

5.2.3. Develop a coal blending and Co firing plan

On the one hand, by co firing coal types, the cost of coal entering the furnace can be reduced, thereby lowering fuel costs. On the other hand, adjusting the proportion of coal blending can reduce carbon emissions and further reduce carbon costs by controlling the elemental carbon content. Coal power enterprises should calculate the carbon emissions of different coal types in detail and convert them into the unit price of coal, and include the cost of carbon emissions in the coal blending strategy. With the tightening of carbon quota benchmarks, coal-fired power enterprises need to continuously optimize their calculation models, and provide more institutionalized measures for managing carbon emissions by establishing regulations, optimizing processes, and other means.

5.2.4. Establish a real-time cost monitoring system

Firstly, strengthen the scientific calculation of real-time power generation costs. Establish a scientific and efficient cost data collection method, by adding monitoring points and other methods, establish dedicated monitoring channels for the start-up costs of different units in cold, warm, and hot start-up states, and achieve full coverage of various different operating conditions of the units.

Secondly, develop a real-time cost estimation tool system that matches the actual workflow of the power plant. At the same time, establish a quasi real-time system that spans multiple information subsystems of the enterprise, comprehensively utilize the company's information platform and network database technology to collect and organize data scattered in each subsystem, generate real-time information, and ensure the accuracy, reliability, and comparability of the data.

Thirdly, establish a real-time cost management system for power generation. We should establish an organizational system for group companies, regional companies, and power generation enterprises to carry out real-time cost management for power generation, establish a professional real-time cost calculation working group, and also develop real-time cost management methods and related technical standards for power generation. We should standardize the real-time cost management work of power generation enterprises from both institutional and technical standards, and form a unified institutional system.

5.3. Limitations and future research direction

This paper takes the evolution of coal power policy as the research entry point, rearranges the new structure of coal power costs under the dual-carbon target, and discusses the impact of policy evolution on coal power cost control, and puts forward cost control suggestions for the future healthy and sustainable development of coal power enterprises from two aspects, namely, “unimpeded cost and price mechanism of coal power” and “strengthened capacity of cost control of coal power”. However, due to the lack of research level and the limitation of the length of journal articles, the research on the coal power price mechanism lacks corresponding development, and the discussion on the coal power cost and price linkage mechanism is not in-depth. With the advancement of the dual-carbon goal, the new power system will certainly become a major component of the future power market framework, so further discussion of the cost-price linkage mechanism of coal and electricity under the new power system, and sorting out and proposing the transmission and cost optimization paths of the coal and electricity feed-in tariffs mechanism under the new characteristics, will be the direction of the research of the team and me in the next step.

Author ethics requirements

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Data availability

Question:Has data associated with your study been deposited into a publicly available repository?

Response:The data related to this study has been stored in publicly available repositories.

Question:Please provide the name of the repository and the accession number here.

Response:https://www.cnki.net/https://www.stats.gov.cn/

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CRediT authorship contribution statement

Xiaohua Song: Software, Resources, Project administration. Bingjia Zhang: Writing – review & editing, Writing – original draft, Software, Data curation.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.