On February 9, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) of the People's Republic of China released the Notice on Deepening the Market-Based Reform of New Energy Feed-in Tariffs to Promote High-Quality Development (hereinafter referred to as the Notice). A feed-in tariff is a policy that supports renewable energy production by providing guaranteed payments or incentives to producers for every unit of electricity they supply to the grid.
The Notice clarifies that energy storage systems (ESS) will not be required for the approval, grid connection, or power purchase agreements of new energy projects. In other words, the energy storage system is not mandatory when newly installing new energy power generation projects. For photovoltaic (PV) energy, feed-in tariffs will be determined through market-based bidding, with a sustainable price settlement mechanism established during the settlement process, which will be used for the settlement of power generated from new energy sources included in this mechanism. And the prices discovered via such process is called mechanism power price. This policy will come into effect on June 1, 2025.
Core Elements of the Notice
- Comprehensive Market-Based Pricing: The electricity generated by new energy projects will generally enter the power market, with on-grid prices determined through market transactions.
- Differentiated Policies for Existing and New Projects: Existing projects will continue under the current policy until June 1, 2025. New projects, however, will have their prices determined through competitive bidding in the market.
- Establishing a Sustainable Price Settlement Mechanism: A new price settlement system will be introduced, which will include different settlement rates. This system is designed to ensure fair returns for new energy companies and help stabilize the development of the industry.
Implementation Timeline and Arrangements
The reform sets June 1, 2025, as the cut-off date for existing and new projects. Existing projects will transition smoothly through methods like price settlement, while new projects will determine mechanism power prices through market-based bidding.
Additionally, the government allows local authorities to tailor specific implementation plans based on regional renewable energy development and electricity market conditions, with all plans to be finalized by the end of 2025.
Impact on the energy storage end
Short-term impact: A surge in the installation of solar storage projects is expected before June 1, 2025. The key reasons for this are as follows:
- Securing Policy Benefits for Existing Projects and Avoiding Auction Risks for New Projects:
Existing projects that are completed before the deadline will continue to enjoy the current price benefits. In contrast, new projects will be subject to market-based bidding, which carries the risk of price drops and fluctuations. To ensure stable returns, companies are likely to complete and connect their projects to the grid before the deadline, so they can benefit from the policy protections available to existing projects.
- Avoiding Subsidy Cuts or Reduced Returns:
Companies typically aim to finish their projects before the new policy takes effect to secure subsidies or higher electricity prices. The reform makes it clear that existing projects will still receive subsidies based on the original standards, as long as they are within the reasonable usage hours.
- Balancing Consumption Responsibility and Project Economics
The amount of electricity from new projects included in the mechanism is linked to the regional renewable energy consumption targets, excluding hydropower. If companies fail to meet these consumption targets, their electricity allocation for the following year may be reduced.
- Short-Term Supply Chain and Capacity Competition
The energy storage industry is currently facing price competition. To avoid potential supply chain issues, companies should aim to complete their grid connections before the policy deadlines.
Medium-term impact: The removal of the mandatory energy storage policy is expected to reduce the demand for storage systems supporting renewable energy projects. Previously, this policy was a key driver for the growth of large-scale energy storage installations. In 2024, China's total energy storage capacity reached 111.6 GWh, with 74.6% (83.2 GWh) driven by renewable energy targets. However, without this policy, there may be a decrease in demand for less efficient energy storage projects.
China's energy storage installation forecast for 2025 has been revised down from 127 GWh to 115 GWh. With an estimated demand of 86 GWh for energy storage, this revision could reduce the need for around 52,000 tonnes of Lithium Carbonate Equivalent (LCE), which is about 4% of the total projected lithium carbonate demand of 1.36 million tonnes for the year.
While larger manufacturers of high-pressure lithium iron phosphate (LFP) are less affected by the policy change, smaller companies that focus on second-generation LFP products, often used in energy storage, may face more significant challenges.
Long-term impact: As China's renewable energy sector fully joins the electricity market, energy storage systems will become essential for balancing supply and demand. Market changes will push storage systems into more areas, such as power spot and support service markets, where they can take advantage of price differences and earn compensation for services. The reform will also encourage innovation, drive industry upgrades, lower costs, and improve performance, while ensuring that storage systems actively participate in market trading.
Written by Cora Ji, jiruyan@mysteel.com
Edited by Aggie Hu, huchenying@mysteel.com
