New RE price settlement mechanism set to reshape energy markets
China is continuing its electricity market liberalization with the introduction of the Renewable Energy (RE) Price Settlement Mechanism (机制电价). This reform aims to enhance certainty for RE developers while ensuring fair market integration for wind and solar projects. This new mechanism will be major shift in how RE integrates into the market.
Old system
Under China’s guaranteed purchase model at coal-benchmark tariffs, RE projects, mainly wind and solar, were granted priority grid access, with their electricity purchased at a fixed tariff benchmarked against local coal power prices.
This system provided price certainty for RE developers and encouraged investment but often led to curtailment issues due to rigid pricing structures and grid congestion. While ensuring stable revenues, the model limited competition, preventing renewables from fully integrating into market-based trading.
Transition to market-driven pricing
RE generators must now compete in spot and long-term electricity markets, shifting from guaranteed purchases to price formation through market transactions.
For large energy buyers, this means renewables will increasingly be priced through market mechanisms, offering greater flexibility and participation in power trading. Provincial governments will play a key role in setting the mechanism’s price levels in their provinces – potentially above or below coal benchmarks – impacting cost structures and procurement strategies depending on your location.
What’s changing in long-term market trading?
- Customized contract terms: Buyers and sellers will have the flexibility to negotiate power contracts based on renewable energy output characteristics, optimizing energy procurement around supply patterns.
- Structured green power trading: A clear separation of electricity prices and Green Certificates (绿证, Green Energy Certificates) will improve pricing transparency, creating more structured renewable energy procurement opportunities.
- Growth in long-term PPAs: RE generators will be encouraged to sign multi-year PPAs with large energy users, offering greater price stability while helping companies meet sustainability goals.
- Multi-year trading expansion: The reform supports multi-year structured trading, potentially reducing price volatility and enabling long-term investment certainty for corporate buyers and developers.
What does this mean for large energy users?
As China moves toward a high-RE power system, this market-driven shift will expand opportunities for long-term PPAs, enhance green certificate trading, and require new strategies for managing price risks.
E&C will continue to monitor provincial implementations, assess competitive RE sourcing strategies, and consider new hedging mechanisms to optimize your electricity procurement.
For further insights reach out to our Lead Partner in APAC, Juan Rios.
Source: https://www.ndrc.gov.cn/xwdt/tzgg/202502/t20250209_1396067_ext.html
