Abstract: The main contents of the theoretical studies of grid investment and governance include the business investment patterns, the regulated investment patterns, and the incentive and efficiency issues of the power grid ownership and the operating right under the implementation of the integrated structure and separated structure. The commercial investment model relies on the assumption of near-perfect competition and the separated structure of the grid ownership and the system operating right, which in reality is prone to distorted incentives for grid investment and easy to generate team moral hazards, thus it is difficult to ensure effective grid investment in the competitive electricity market. By relying on incentive regulation, the integrated structure of the grid ownership and the system operating right under the regulated investment mode can avoid moral hazard in the teams and various distorted investment incentives. Comparatively speaking, the regulated investment model is a more appropriate one to be the main target pattern for the grid investment during China’s power market reform. The power grid governance should focus on the release of the potential efficiency under the integrated structure of the grid ownership and the right to operate the system. The power system reform must take a coordinated promotion of the construction of a competitive market and the reform of the grid management system, so as to avoid becoming a simple interest re-adjustment.

Key words: power grid investment; power management; distorted incentives; reform of electric power system