China Deepens Marketisation of Renewable Energy

China’s National Development and Reform Commission (NDRC) and National Energy Administration (NEA) recently issued a landmark decree paving the way for the complete marketisation of electricity generated from renewable sources. This marks a momentous shift in policy, officially ending two decades of government-set pricing in the sector.

China's renewable energy market had already gone through several years of reforms to alleviate substantial government subsidy burdens and establish market-driven pricing. The national government discontinued its renewable energy subsidy programme in 2021. Over the past five years, the share of renewably sourced electricity traded on the open market has been increasing substantially; by the end of 2024, it was over 50 percent.

However, the government acknowledges the inherent revenue volatility that power plants face under a market-based pricing system. The recent announcement aims to address this challenge by introducing a ‘reference price’ system, analogous to the United Kingdom’s Contracts for Difference (CfD) scheme. Participating generators will receive compensation from grid operators for electricity sold below the reference price, but will also have to remit the difference back to the grid operators should market prices exceed this benchmark.

Renewable energy facilities operational before 1 June 2025 will be subject to this referential price structure, which should help them mitigate revenue volatility better than under the existing system. For new projects operational after this date, eligibility will be determined by a competitive bidding process. The overall trend is to progressively reduce the reliance of power generators on such reference price arrangements.

Predicting the ultimate effect of the new policy on power plants remains a considerable challenge. Plant operators must actively work to cultivate a more profound understanding of the overall power system and adjust their strategies accordingly within the new context.