Breaking News! Detailed Analysis on Deepening the Market-Oriented Reform of New Energy On-Grid Tariffs [SMM Analysis]

On February 9, the National Development and Reform Commission (NDRC) and the National Energy Administration jointly issued the "Notice on Deepening the Market-Oriented Reform of New Energy On-Grid Tariffs to Promote High-Quality Development of New Energy." It proposed promoting the participation of new energy on-grid electricity in market transactions. In principle, all on-grid electricity from new energy projects (wind power and solar power generation, the same hereinafter) should enter the electricity market, with on-grid tariffs formed through market transactions. New energy projects can participate in transactions by submitting volume and price bids or accept market-formed prices. The notice focuses on three main aspects: first, promoting the formation of new energy on-grid tariffs through the market; second, implementing a differential settlement mechanism for on-grid tariffs based on the commissioning time of projects, with June 1, 2025, as the dividing line between existing and new projects. Detailed interpretations are as follows:

I. Promoting the Full Market Formation of New Energy On-Grid Tariffs
All on-grid electricity should enter electricity market transactions , allowing participation through volume and price bidding or market-formed price transactions. Typically, volume and price bidding involve large-scale centralized projects being bundled and sold to specific enterprises.

Improving spot market trading and pricing mechanisms: Provincial authorities will set upper and lower limits for spot market bidding. The upper limit will consider critical peak period electricity prices for industrial and commercial users in each region, while the lower limit will be determined based on other factors affecting new energy in the electricity market.

Enhancing medium and long-term market trading and pricing mechanisms: Shortening trading cycles will enable market participants to conduct transactions more frequently and promptly. Contract terms can be adjusted based on the actual supply conditions of new energy, with clear distinctions made between electricity prices and green power certificate prices during transactions. Intra-provincial green power trading will not adopt specific mechanisms such as centralized bidding or rolling matching for independent trading activities, aiming to simplify processes and improve transaction efficiency.

New energy power generation enterprises are encouraged to sign multi-year power purchase agreements with electricity users to manage market risks in advance and establish stable supply-demand relationships. Power trading institutions are guided to explore organizing multi-year transactions under reasonable coordination and controllable risks.

II. Establishing and Improving Institutional Mechanisms to Support High-Quality Development of New Energy
 

Differential settlement mechanism: Provincial pricing authorities, in collaboration with provincial energy and electricity operation authorities, will determine the tariff levels (hereinafter referred to as mechanism tariffs), electricity volume, and execution period for new energy included in the mechanism. For electricity included in the mechanism, the settlement price will be the market transaction average price plus/minus the difference with the mechanism tariff (i.e., settled at the mechanism tariff, with excess refunded or shortfall supplemented). Settlement costs will be included in the local system operation costs.

The electricity volume, mechanism tariff, and execution period under the sustainable development price settlement mechanism for new energy

For existing new energy projects commissioned before June 1, 2025,

the scale of electricity subject to the mechanism tariff : The electricity volume will be determined based on existing policies and local government arrangements, and the proportion of electricity subject to the mechanism tariff cannot exceed the previous year's level.

Mechanism tariff : According to current pricing policies, it cannot exceed the benchmark coal power tariff.

For new projects commissioned on or after June 1, 2025:

The scale of electricity subject to the mechanism tariff : The annual additional electricity volume included in the mechanism will be determined by local governments based on the completion of national targets and users' affordability. Adjustment mechanism: If a region exceeds the national requirement for the renewable energy consumption obligation weight (excluding hydropower), the electricity volume included in the mechanism for the following year can be appropriately reduced. If the obligation weight is not met, the electricity volume included in the mechanism for the following year can be appropriately increased. When applying to join the mechanism, individual projects can propose including an electricity volume slightly lower than their total power generation, allowing flexibility to respond to market or policy changes.

Mechanism tariff: Projects already commissioned or to be commissioned within the next 12 months and not previously included in the mechanism will participate in bidding. The government will set bidding upper and lower limits, and selection will be based on bids from low to high, with the highest bid serving as the mechanism tariff (initially organized by technology type for classified bidding and selection).

Execution period for projects: Determined based on the average time required to recover initial investments for similar projects. Start time: For uncommissioned projects, it will be the commissioning time; for commissioned projects, it will be the time of inclusion in the mechanism.

Settlement method under the sustainable development price settlement mechanism for new energy: During settlement, the difference between the market transaction average price and the determined mechanism tariff will be included in the operational systems of each province.

Actual on-grid electricity and monthly allocated electricity: Allocated electricity refers to the total electricity included in the market mechanism for each region, divided annually into monthly allocations. If the actual on-grid electricity is lower than the monthly allocation, it may indicate insufficient electricity demand for that month to absorb the allocated electricity, resulting in actual on-grid electricity falling short of the plan. Settlement will be based on actual usage, with adjustments and clearances made monthly until year-end.

Exit rules for the sustainable development price settlement mechanism for new energy: New energy projects included in the mechanism can voluntarily apply to exit during the execution period. Projects that reach the end of their execution period or voluntarily exit during the period will no longer be included in the mechanism.

In summary, promoting the full integration of new energy on-grid electricity into the electricity market and gradually reducing fixed government-set on-grid tariffs for new energy through market transactions will ensure fair responsibility sharing. This will improve market trading and pricing mechanisms adapted to new energy development, promote fair market participation for new energy, and implement sustainable on-grid tariffs for new energy.