Electricity spot market reform and overcapacity in fossil-fired power firms: A quasi-natural experiment based on China power market

This study examines the impact of China's electricity spot market reform on overcapacity among fossil-fired power firms. By introducing real-time pricing mechanisms and enhancing market competition, the reform has led to severe capacity idleness among coal-fired power producers in the absence of policy support. Empirical evidence shows that the reform has exacerbated overcapacity in several provinces, with more pronounced effects in regions with higher levels of market liberalization. The analysis identifies environmental regulation stringency and firms' financial trading capacity as key factors influencing capacity adjustment, while interregional power transmission plays a mitigating role. This paper introduces and conceptualizes the phenomenon of “Passive IdlenessPassive Idleness” as a novel form of overcapacity, contributing to the theoretical understanding of electricity market reform. The findings offer important policy implications, highlighting the need to balance market efficiency with institutional equity in the ongoing transition toward a more market-oriented power sector.