context: The Notice on deepening market-oriented reform of on-grid electricity prices for new energy, released on 9 February 2025, emphasises market-based reforms in the energy sector. The move comes three years after a similar reform of coal power pricing. The document fundamentally changes the way renewable energy will be priced in the market, necessetating a large overhaul also of the Renewable Enrgy Law. The policy grants local governments the authority to tailor implementation to regional conditions, with a deadline for nationwide rollout by the end of 2025.
One key objective of the new pricing policy for new energy is to ensure that all new energy—such as wind and solar power—fully enters the electricity market, with grid-connected electricity prices determined entirely by market transactions, according to a National Development and Reform Commission explainer.
The traditional fixed pricing model no longer reflects the real supply and demand conditions, nor does it fairly distribute the responsibilities for system regulation. As new energy capacity has grown significantly—by 2024, installed capacity reached approximately 1.41 bn kilowatts, accounting for over 40 percent of the national total—this reform was urgent, according to the explainer.
A second important element is the establishment of a sustainable price settlement mechanism. New energy sources are inherently intermittent and volatile. For example, solar power typically peaks at midday and nearly vanishes during evening hours. This imbalance can cause significant revenue fluctuations for generators.
To address these issues, the mechanism employs a 'multi-refund, little deduction' approach. If the market price falls below a preset 'mechanism price', the difference is compensated, whereas excess revenue when prices are above the benchmark is deducted. This approach, mirroring contracts for difference practices in successful international markets, is designed to stabilise revenue and secure long-term investment in the sector.
The notice differentiates between existing (stock) and new (incremental) projects, using 1 June 2025, as the dividing line. Existing projects will have their mechanism prices aligned with current policies through the settlement process, while incremental projects will see their prices determined via market-based competitive bidding adjusted to local development targets.
The reform is expected to promote efficient allocation of power resources, support the development of a modern electricity system and accelerate the construction of a unified national electricity market—all while ensuring that electricity prices for residential and agricultural users remain unaffected.