According to China Power Enterprise Management, on February 9, 2025, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) jointly issued the Notice on Deepening the Market-Oriented Reform of New Energy On-Grid Electricity Prices to Promote High-Quality Development of New Energy (Fa Gai Jia Ge [2025] No. 136) (hereinafter referred to as the "document"). The notice aims to promote the full market entry of new energy generation and ensure that on-grid electricity prices are entirely determined by the market. This marks another significant step in China's electricity price reform on the generation side following the 2021 market-oriented reform of coal-fired power on-grid tariffs. It is also an important measure to implement the spirit of the 20th CPC Central Committee’s Third Plenary Session on advancing price reforms in sectors such as water, energy, and transportation.
A close examination of the document reveals a well-designed reform framework that not only emphasizes market competition but also ensures the continued development of new energy. It balances the protection of existing asset returns with efforts to improve investment efficiency in new projects. The reform introduces four key "firsts":
1、First-time Requirement for Full Market-Based Participation of All New Energy Generation
The document stipulates that, in principle, all electricity generated by new energy projects (wind and solar power) must enter the electricity market, with on-grid prices determined through market transactions. The scope of new energy projects includes onshore wind, offshore wind, solar power, distributed solar, and distributed wind power. The market transactions encompass mid- to long-term contracts, spot markets, and ancillary services. This move signifies that all new energy generation in China must now participate in market trading, bringing an end to government-set pricing. It establishes equal market rights for new energy and traditional energy, underscoring the country’s commitment to market-based reforms on the generation side.
2、First-time Establishment of a Sustainable Pricing Mechanism to Ensure Reasonable Returns for New Energy
The document introduces a price difference settlement mechanism outside the market to ensure stable revenues for new energy projects. If the market trading price of electricity falls below or rises above a predetermined benchmark price, a settlement will be made for the price difference, with the costs included in local system operation expenses. This mechanism effectively provides an "insurance policy" for new energy revenue, ensuring that participating projects receive a stable price regardless of market fluctuations. This approach aligns with international best practices for market-oriented policy implementation, as it allows policy costs to be quantified while avoiding economic harm to other market participants.
3、First-time Implementation of "Soft Constraints" to Improve Investment Efficiency in New Energy
The document introduces differentiated pricing rules for existing and new new-energy projects. For existing projects, the mechanism price follows current pricing policies, while for new projects, the price will be determined through competitive bidding. Additionally, the scale of new energy capacity will be decided based on regional renewable energy consumption targets and users' electricity price affordability. By granting local governments greater autonomy in determining the pace and scale of new energy development, the policy promotes region-specific planning and shared responsibilities. The competitive bidding mechanism for new projects prevents inefficient expansion and ensures that investment decisions prioritize cost-effectiveness, grid integration, and zero-carbon power supply, thereby fostering high-quality new energy development.
4、First-time Rationalization of Economic Relationships in the Power Spot Market
The reform establishes a new approach to price difference settlement in regions with power spot markets, linking the mechanism price to the weighted average price of similar projects in the monthly real-time generation market. This means that new energy projects under the mechanism will not be required to participate in the day-ahead market, reducing risks from market deviations. Additionally, the execution of price difference agreements aligns with electricity futures contract mechanisms, laying the foundation for the future development of power futures markets and facilitating the adoption of highly liquid long-term power contracts. The document also proposes accelerating the ability of new energy projects to independently participate in the day-ahead market, prompting adjustments to regional power spot market rules. This shift will restore the financial hedging role of the day-ahead market, similar to mid- to long-term contracts, providing market participants with more risk-hedging opportunities.
Furthermore, the document calls for moderate relaxation of price caps in the spot market. The upper limit for bidding prices will be determined based on peak electricity prices for industrial and commercial users in different regions, while the lower limit will take into account off-market revenues available to new energy projects. This measure is expected to enhance peak-valley price differentials and improve system flexibility, facilitating greater new energy consumption and market integration.
The reform of new energy on-grid electricity prices marks a significant milestone, with approximately 80% of China’s installed capacity and 80% of its power generation now subject to market-based pricing. This transition signals a new stage of high-quality development for China's modern power system.
Source：https://mp.weixin.qq.com/s/zuPVHNV5ioDtVGqy7sdvTw
