China Enhances Market-Oriented Reforms For Renewable Energy Pricing To Establish Green Electricity Market

China is intensifying its efforts to reform the on-grid pricing for renewable energy, aiming to establish a green electricity market. A notice from the National Development and Reform Commission (NDRC) and the National Energy Administration outlines key measures for this reform. The notice states that renewable energy, including wind and solar, will primarily enter the electricity market with prices set through market transactions.

Once fully integrated into the grid, around 80% of China's installed power capacity, generation, and consumption will be market-driven. Chen Dayu from China Huaneng Group's Energy Research Institute noted that these milestones signify most of China's electricity has entered the market. This development supports creating a unified national power market.

The notice also highlights the need for a price settlement mechanism to ensure new energy's sustainable growth. Due to unique characteristics, new energy companies might face challenges in the market. For instance, photovoltaic power peaks at midday, causing supply surges and price drops. Conversely, during evening peaks when prices are higher, renewable output is often low.

The proposed price settlement mechanism aims to stabilise revenues for new energy producers. If market prices fall below a certain level, compensation will cover the difference. This approach helps mitigate financial risks for new energy enterprises. "This reform has established an off-market protection mechanism for the market-oriented prices of new energy power," said Chen.

Data from the National Energy Administration (NEA) shows that in 2024, renewable energy accounted for 86% of China's newly installed power capacity. The cumulative installed capacity reached a record 56% of the nation's total. Meanwhile, renewable generation hit 3.46 trillion kilowatt-hours in 2024, marking a 19% year-on-year increase and comprising about 35% of total electricity produced.

This comprehensive approach aims to support China's transition towards a more sustainable and efficient energy system by integrating renewable sources into its national grid effectively.

With inputs from WAM