On February 9, China’s National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) jointly issued a document No. 136. This document is a directive aimed at deepening the market-oriented reform of electricity pricing for renewable energy. The policy marks a turning point for the industry, shifting from a policy-driven model to a market-driven landscape. More than just a reform, it serves as a litmus test for companies’ core competitiveness.
Under the new directive, all electricity generated by new energy projects—including wind and solar—must enter the power market, with grid tariffs determined by market transactions. A key aspect of the reform is the differentiation between existing and new projects. Effective June 1, existing projects will follow a transition mechanism where pricing remains subject to current policies but capped at the local benchmark coal-fired power tariff. Meanwhile, new projects will adopt a fully market-based approach, where tariffs are determined through competitive bidding.
While the policy lacks detailed implementation guidelines, creating short-term uncertainties and industry concerns, the long-term impact is clear: market-driven transactions will be the foundation for scaling renewable energy capacity. Additionally, the reform raises the bar for investment and operational strategies, favoring industry leaders with strong capabilities in managing renewable energy assets.
According to data from the China Electricity Council (CEC), China’s total installed power generation capacity reached 3.35 billion kilowatts by the end of 2024, a 14.6% year-on-year increase. Notably, solar power capacity rose 45.2% to 890 million kW, while wind power expanded 18% to 520 million kW. Together, solar and wind accounted for 42.1% of total capacity—almost on par with thermal power at 1.44 billion kW.
A fundamental challenge of electricity as an energy source is that it cannot be stored directly. Power generation and consumption must remain balanced in real time. However, solar and wind power are inherently intermittent, leading to supply-demand mismatches. For instance, solar farms generate the most electricity during midday when power demand is typically low. As the share of renewable energy continues to grow, managing the stability of the power system becomes increasingly complex.
Despite these challenges, China remains committed to expanding its renewable energy footprint. The nation’s “Energy Law” explicitly states the goal of promoting green, low-carbon economic transformation while ensuring sustainability. The critical question now is how to maintain grid stability while increasing the penetration of renewables.
A viable solution is the development of a system that integrates source, grid, load, and storage. Virtual power plants (VPPs), smart grids, and flexible power demand management are leveraged as part of the process, and achieving this vision requires a robust power market where electricity prices reflect real-time supply and demand dynamics.
Policymakers have consistently supported market-based mechanisms. In August 2024, Beijing issued a strategic guideline on accelerating green economic transformation. The document emphasized the importance of renewable energy and encouraged the development of large-scale wind and solar bases, offshore wind farms, and distributed solar systems.
Even at the highest levels of government, this transition is viewed as essential. During a key political study session in 2024, President Xi Jinping underscored the urgent need for renewable energy development, citing both supply constraints and the imperative for low-carbon transformation.
Beyond environmental benefits, green electricity also delivers economic value. According to the NDRC’s 2024 national economic development report, household solar projects have expanded to over 5 million households, increasing annual income per household by approximately RMB 2,000 (USD 280).
The shift toward market-based transactions is a gradual process. In 2024, the NEA released a blueprint for the national unified power market, outlining key milestones: an initial framework by 2025, full implementation by 2029, and further refinement by 2035. The core objective is a stable and orderly transition.
To mitigate risks during this shift, document No. 136 introduces a pricing mechanism as a buffer for renewable energy operators. This mechanism operates outside direct market transactions, ensuring a baseline revenue for power producers.
Here’s how it works: after a renewable energy producer sells electricity through market trading, an additional settlement occurs based on the difference between the market price and the predefined pricing mechanism rate. If market prices fall below this rate, operators receive supplementary payments; if prices exceed it, the excess is returned.
For existing projects, this mechanism follows current pricing policies and is capped at the local desulfurized coal-fired benchmark tariff. In contrast, new projects must engage in annual competitive bidding to determine their pricing mechanism rates.
This approach draws inspiration from international models such as the UK’s Contracts for Difference (CfD) framework. Under the UK system, the government establishes a long-term strike price for renewable energy projects. When market prices fall below this level, a government-backed fund compensates producers; when market prices rise above it, producers pay the excess back. Since its implementation in 2017, CfD has helped stabilize renewable energy prices while ensuring financial viability for green energy developers.
By adopting a similar strategy, China’s policymakers aim to prevent extreme market volatility while ensuring the continued growth of renewable energy investments.
The biggest impact of the new directive will likely be on distributed solar projects, particularly residential solar. Unlike utility-scale solar farms, which have operated under market pricing since 2021, distributed solar projects still rely on fixed tariffs and government subsidies. With the new policy, these projects must fully transition to market-based pricing, affecting grid access, tariff structures, and consumption models.
Research by CMB International suggests that power plant developers must adopt new strategies, including cost optimization through better site selection, advanced technology integration, and enhanced financial management. Additionally, new business models—such as energy storage, VPPs, and peak-valley price arbitrage—will be critical for maximizing revenue.
Over time, the residential solar market will undergo a supply-side shakeout, favoring companies with stronger innovation and operational capabilities.
On the demand side, China’s electricity consumption is expected to exceed 13 trillion kilowatt-hours by 2030, with annual growth rates of 4–6% from 2025 onward. The residential solar market remains underpenetrated, with a potential capacity of over 1,600 GW, yet current installations represent only 10% of this total.
Although market opportunities remain vast, companies must prepare for a future where power pricing is fully market-driven. Once the pricing mechanism completes its transitionary role, renewable energy operators will need to rely on operational excellence and strategic planning to remain competitive.
For leading residential solar companies like Chint Anneng, document No. 136 represents an opportunity.
Chint Anneng has already prepared for this shift with a three-tier strategy:
- Short-term: Strengthening its non-residential solar business to maintain stable revenue streams.
- Mid-term: Expanding into village-wide solar projects, smart microgrids, and virtual power plants to diversify income sources.
- Long-term: Developing capabilities in green certificates, renewable power trading, and retail electricity sales to build a vertically integrated power trading business.
The company has already executed green power transactions in multiple provinces, including Jiangsu, Zhejiang, and Guangdong. In October 2024, its subsidiary in Jiangsu completed the province’s first residential solar green power trade.
As China’s power market continues to evolve, companies with a forward-thinking approach and comprehensive business strategies will be best positioned to navigate the transition and seize new growth opportunities.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by 36Kr Caijing.