Deepening the Market-oriented Reform of New Energy Feed-in Tariffs and Promoting the High-quality Development of New Energy

On 27 January 2025, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) issued a Notice pertaining to new energy feed-in tariff reform and the development of new energy types.

The Notice stated the intention of the government to deepen the market-oriented reform of new energy feed-in tariffs, promote the full entry of new energy into the electricity market, and let market forces decide on prices. The Notice was sent to relevant stakeholders including policymakers, regulators and utilities, and its key points are set out below

1) Enabling development of new energy

In general, the stakeholders should make efforts to promote the full entry of new energy on-grid electricity into the power market, and establish prices through market transactions. As such, they should improve markets and price mechanisms, adapt them to the development of new energy, promote the market entry and fair participation of new energy sources, and establish a price settlement mechanism for sustainable development of new energy. They should adopt strategies and coordinate policies to improve power markets, enhancing support for meeting new energy development goals.

2) Promoting the establishment of new energy feed-in tariffs by the market

i) Promoting the participation of new energy on-grid electricity in market transactions

In principle, all on-grid electricity of new energy projects will enter the electricity market, and the feed-in tariff will be established through market transactions. New energy projects can be quoted to participate in the transaction and can also accept the price established by the market.

For electricity generated from new energy sources that engage in inter-provincial and inter-regional transactions, the feed-in tariff and trading mechanism shall be implemented in accordance with the relevant policies for inter-provincial and inter-regional power transmission.

ii) Enhancing the spot market transaction and price mechanism

Relevant stakeholders should improve the trading rules of the spot market, promote the fair participation of new energy in the real-time market, and accelerate the establishment of voluntary participation in the day-ahead market. The upper limit of the declared price in the spot market shall be determined by taking into account factors such as the level of current peak electricity price of industrial and commercial users in various places, and the lower limit of the declared price shall be determined by considering other benefits that can be obtained by new energy outside the electricity market. The prices shall be formulated and adjusted in a timely manner by the provincial price authority in consultation with relevant departments.

iii) Improving the medium and long-term market transaction and price mechanism

Stakeholders should seek to continuously improve the medium and long-term market trading rules, shorten the trading cycle, increase the frequency of trading, and establish weekly, multi-day, and day-by-day market opening. The supply and demand sides are allowed to reasonably determine the volume, price, curve and other contents of the medium and long-term contracts in combination with the characteristics of new energy output, and flexibly adjust them according to the situational factors. Stakeholders should aim to improve green electricity trading policies, and the price of electricity and the corresponding Green Electricity Certificate (GEC) should be clarified respectively in the declaration and transaction price. Centralised bidding and rolling matching transactions are not separately organised in the province’s green power trading.

Relevant stakeholders should encourage new energy power generation enterprises to sign multi-year power purchase agreements with power users, manage market risks in advance, and establish a stable supply and demand relationship. Relevant stakeholders need to guide power trading institutions to explore and organise multi-year transactions under the premise of reasonable convergence and controllable risks.

3) Establishing and improving institutional mechanisms to support the high-quality development of new energy

i) Establishing a price settlement mechanism for the sustainable development of new energy

Relevant stakeholders should establish a mechanism for the settlement of price differences outside the market. The level of new energy electricity prices (hereinafter referred to as the mechanism price), the scale of electricity and the implementation period shall be clarified by the provincial price authorities in conjunction with the provincial energy authorities and the power operation authorities. For the electricity used to establish the mechanism, the part of the average market transaction price that is lower than or higher than the mechanism electricity price shall be settled by the power grid enterprise in accordance with the regulations, and the settlement fee shall be included in the local system’s operation costs.

ii) The scale of electricity, the price of the mechanism and the implementation period of the price settlement mechanism for the sustainable development of new energy

For new energy projects put into operation before 1 June 2025:

• The scale of electricity should be linked with the current relevant electricity policies of a guaranteed nature by all localities. Within the scope of the scale, new energy projects shall independently determine the proportion of electricity in the implementation mechanism each year, but it shall not be higher than the previous year. New energy projects should be encouraged to enhance their competitiveness through equipment upgrading and upgrading, and actively participate in market competition.

• The mechanism price shall be implemented in accordance with the current price policy and shall not be higher than the local benchmark price of coal-fired power.

• The implementation period shall be determined in accordance with the current relevant policy guarantee period. Solar thermal power generation projects and offshore wind power projects that have been competitively allocated shall be implemented in accordance with the current policies of each locality.

For new energy incremental projects to be put into operation from 1 June 2025:

• The scale of new electricity to be included in the mechanism each year shall be determined by each locality according to the completion of the annual non-hydropower renewable electricity weight of consumption responsibility issued by the state, as well as factors such as the user’s affordability. If the weight of consumption responsibility is exceeded, the scale of electricity included in the mechanism in the following year can be appropriately reduced; if it is lower than the benchmark, the scale of electricity included in the mechanism in the following year can be appropriately increased. In the first year after the implementation of the notice, the proportion of new electricity included in the mechanism to the on-grid electricity of new energy in local incremental projects should be appropriately linked to the non-market-oriented proportion of existing new energy prices to avoid excessive fluctuations. The amount of electricity that a single project applies to be included in the mechanism may be appropriately lower than its total power generation.

• The mechanism electricity price shall be formed by the voluntary participation in bidding of projects that have been put into operation and put into operation in the next 12 months and have not been included in the scope of implementation of the mechanism. During the bidding, the selected projects shall be determined according to the quotation from low to high. In principle the mechanism electricity price shall be determined according to the highest quotation of the selected project but shall not be higher than the upper limit of the bidding. The upper limit of bidding shall be determined by the provincial price authority taking into account factors such as reasonable cost and benefit, green value, supply and demand situation of the electricity market, and user affordability.

• The implementation period shall be determined according to the average period of recovery of the initial investment of similar projects. The starting time shall be determined according to the commissioning time declared by the project, and the projects that have been put into operation at the time of selection shall be determined according to the selection time.

iii) Settlement method of the price settlement mechanism for the sustainable development of new energy

For the electricity included in the mechanism, the power grid enterprises shall conduct the price difference settlement according to the mechanism electricity price every month and include the difference between the average market transaction price and the mechanism electricity price into the local system’s operating expenses. In the initial stage, no other forms of differential settlement will be conducted. In areas where the electricity spot market operates continuously, the average market transaction price shall be determined in principle according to the weighted average price of similar projects in the real-time market on the monthly power generation side. In areas where the electricity spot market is not in continuous operation, the average market transaction price shall be determined in principle according to the weighted average price of similar projects traded on the power generation side in the medium and long-term trading period of the active trading period. All localities will provide a monthly breakdown of the amount of electricity included in the mechanism every year. If the actual amount of electricity on the grid in each month is lower than the amount of electricity included in mechanism for the current month, settlement should be according to the actual amount of electricity on the grid, and the settlement shall be calculated on a monthly basis during the year.

iv) Exit rules for the price settlement mechanism for sustainable development of new energy

New energy projects that have been included in the mechanism may voluntarily apply for withdrawal within the implementation period. If the implementation of new energy projects expires, or if they voluntarily withdraw within the time limit, they will no longer be included in the scope of implementation of the mechanism.

4) Safeguard measures

i) Strengthen organisational implementation

The provincial-level price authorities, together with the energy departments and the power operation authorities, shall formulate strategies including precise analysis, listening to feedback, strengthening policy publicity and interpretation, and resolving challenges during implementation of the reforms. The National Energy Administration (NEA), together with relevant departments, will strengthen market supervision to ensure the fair participation of new energy in transactions and promote the smooth operation of the market. Power grid enterprises should engage in settlement and contract signing and other related work, and separately collect the results of the implementation of the price settlement mechanism for the sustainable development of new energy.

ii) Strengthen policy coordination

• Relevant stakeholders should strengthen planning coordination, and local reform implementation plans should be conducive to the implementation of the national new energy development planning goals. These include harmonising national energy and power planning, strengthening the coordination of reform and GEC policies, and preventing the double-counting of environmental benefits of GECs.

• Relevant stakeholders should strengthen reform and market coordination, and the amount of electricity that has not been connected to the grid due to quotations and other factors after new energy participation in the market will not be included in the statistics and assessment of new energy utilization.

• Relevant stakeholders should strengthen the coordination of reform and optimisation of the environment, correct improper interference in the electricity market. They shall not unreasonably share costs with new energy, and shall not use the allocation of energy storage as a precondition for the approval, grid connection and grid connection of new new energy projects. For new energy projects enjoying financial subsidies, the subsidy standards within the reasonable utilisation hours of the whole life cycle shall be implemented in accordance with the original provisions.

iii) Assessment of measures

All localities should closely track market price fluctuations, changes in the cost and income of new energy power generation, and the level of electricity prices for end users. They should carefully assess the impact of reform on industry development and enterprise operation, summarise the effectiveness of reform in a timely manner, optimise policy implementation, and continue to enhance the guiding role of market price signals in the development of new energy. In light of the progress of new energy technology, the development of the electricity market, the growth of green electricity consumption and the development of the green certificate market, the State shall continuously improve the system of weightage of responsibility for renewable energy consumption, evaluate and optimise the price settlement mechanism for the sustainable development of new energy in a timely manner, and choose the opportunity to withdraw when conditions are ripe.

As China builds up renewable energy capacity to meet demand, the GEC market will grow in tandem.

Contact REDEX at enquiry@redex.eco to find out more about GECs.