Starting May 31, 2025, the electricity prices for newly commissioned renewable energy projects in China will be entirely determined by competitive bidding, with government subsidies being completely phased out.
Key Policy Elements
- Full Market Integration: All renewable electricity will be traded in the market, with no mandatory purchase requirements for power grids.
- Subsidy Elimination: Government subsidies will be phased out.
- Dual-Track Mechanism: A "market-based pricing + price difference settlement" model will be adopted to ensure stable revenues for renewable energy projects.
Four Key Q&As:
1. Why Is Renewables Full Marketization Five Years Ahead of Schedule?
- Capacity Milestone: China hit its 2030 wind and solar power installed capacity target six years early, with renewables surpassing 40% of total installations, exceeding coal power.
- Cost Competitiveness: Wind and solar power generation costs have dropped below 0.30 yuan/kWh, undercutting coal power.
- Structural Shift: The traditional centralized purchasing model incentivized grid operators to act as traders rather than invest in grid upgrades.
- Rising Demand: AI-driven computing power is pushing electricity demand up 5% annually, straining grid infrastructure.
- Market Readiness: By end-2024, over 50% of renewable generation was already traded in the market.
2. How Does Renewables Market Integration Differ from the 2021 Coal Power Market Reform?
- Renewable energy market integration is more aggressive than the coal power reform, adopting a dual-track system of "market-based pricing + price difference settlement" instead of coal power's "benchmark pricing + floating adjustments." The price-difference settlement mechanism applies only to a portion of renewable electricity output and will be phased out over time, making pricing fully market-driven.
3. How Will This Impact Renewable Project Revenues?
Previous Model: Power price = coal power benchmark price (stable returns)
New Model: Power price = market bidding ± price difference settlement (higher volatility)
Break-even Analysis: A 10MW solar PV power plant needs a price above 0.26 yuan/kWh to sustain an internal rate of return (IRR) above 8%, but spot and long-term electricity prices in many regions have already fallen below 0.15 yuan/kWh.
Mechanism Tariffs: The new price settlement mechanism is crucial for stabilizing project revenues. If mechanism tariffs closely match coal power benchmarks, which are normally between 0.25 and 0.49 yuan/kWh, the investment risks will be significantly reduced. However, it remains unclear how the tariffs would be adjusted in different regions.
4. Who Stands to Gain?
For power generators:
- Digital Leaders: Top state-owned and private firms using AI to enhance generation forecasts and bidding strategies.
- Low-Cost Producers: Companies with lower generation costs than coal power will gain more market share.
- Flexible Operators: Projects with long-term contracts or onsite energy storage capacity will see more stable earnings.
For industrial power users:
- The full market integration of renewable electricity will drive faster innovation and cost optimization in renewable generation. While short-term price swings may occur, long-term power prices are expected to decline, making electricity more competitive against fossil fuels. This shift will accelerate electrification. By the end of 2024, electricity accounted for about 28% of China's end-use energy consumption, with projections to reach 30% in 2025.
The above content is the major conclusions and highlights extracted from China (Energy Transition) Policy Perspective. To get detailed full text, send an email to glconsulting@mysteel.com.
