Breaking News! SMM Analysis: Full Marketization of New Energy On-Grid Tariff [SMM Analysis]

Policy Background: Why Is New Energy Electricity Price Reform Imperative?

Against the backdrop of global advocacy for sustainable development, new energy power generation, as a crucial part of electricity development, has garnered increasing attention. In recent years, China's new energy industry has grown rapidly. By the end of 2024, the installed capacity had reached approximately 1.41 billion kW, accounting for over 40% of the total installed capacity, surpassing traditional coal power. This reflects the nation's firm commitment to new energy development and the market's strong demand for green electricity.

Since 2009, the government has introduced multiple policies to support new energy sources such as wind and solar power, ensuring their stable development. Early fixed electricity price policies helped new energy enterprises stabilize expected returns, attract investment, and promote industrial growth. However, as installed capacity expanded rapidly, the drawbacks of fixed electricity prices gradually became apparent.

The instability of new energy power generation has increased the difficulty of power system regulation. Under the fixed electricity price model, new energy cannot promptly reflect market supply and demand dynamics, leading to resource misallocation and an unfair burden on system regulation costs. With declining new energy development costs and improved market rules, advancing electricity price marketization reform has become an urgent priority.

Reform Content: The Path to Marketization of New Energy Electricity Prices

1. Full Marketization of On-Grid Tariffs

The core of the reform lies in forming new energy on-grid tariffs through market mechanisms. From now on, the electricity generated by new energy projects will primarily enter the electricity market, competing with traditional energy enterprises. On-grid tariffs will be determined by market transactions rather than being fixed. Enterprises can choose to participate in transactions or accept market prices, while cross-provincial and cross-regional transactions will follow relevant policies.

For example, before marketization reform, a wind power enterprise's on-grid tariff was 0.5 yuan per kWh (fixed price + market bidding + peak shaving subsidy). After the reform, through market transactions, the tariff became 0.48 yuan per kWh, reflecting factors such as market supply and demand and power generation costs.

Regions are optimizing spot and medium and long-term market rules to promote fair participation of new energy in the market. Spot market price caps are being relaxed, with relevant departments setting them based on critical peak period electricity prices and new energy returns. Medium and long-term markets are shortening transaction cycles, increasing frequency, and improving green electricity trading policies.

New energy enterprises are encouraged to sign long-term power purchase agreements with users to reduce risks and stabilize supply-demand relationships.


2. Sustainable Development Price Settlement Mechanism

To address income instability caused by the randomness, volatility, and intermittency of new energy power generation, the government has established a sustainable development price settlement mechanism for new energy. This mechanism acts as a "reassurance pill" for new energy enterprises.

In simple terms, it is a "pay more, refund less" differential settlement method. When the market transaction price is lower than the mechanism price, power grid enterprises compensate for the difference. When the market transaction price exceeds the mechanism price, the difference is deducted.

This approach enables new energy enterprises to stabilize expectations, avoid income reductions due to market fluctuations, promote investment and operations, and support the "dual carbon" goals. Countries like Germany and the UK have adopted similar policies to ensure stable returns for new energy, providing a reference for China.


3. Differentiated Policies for Existing and New Projects

Considering the differences in operating costs between old and new new energy projects, this reform separates the management of existing and new projects and adopts different policies:

[Existing Projects] Projects commissioned before June 1, 2025, are considered existing projects. Their electricity volume is aligned with current guaranteed policies by local governments. Projects can independently set annual electricity volume ratios within the established scale, but the ratio cannot exceed the previous year's level. Measures such as equipment upgrades are encouraged to enhance competitiveness and actively participate in market competition. In terms of pricing, existing policies apply, and prices cannot exceed the local coal power benchmark price. The execution period is determined based on the guarantee period of relevant policies. Concentrated solar power and offshore wind power projects with competitive allocation already implemented will follow existing policies.

[New Projects] Projects commissioned after June 1, 2025, are considered new projects. Annual additional electricity volume is determined by local governments based on factors such as national non-hydropower renewable energy consumption responsibility weights and user affordability. If targets are exceeded, the scale for the following year can be reduced; if not met, it can be increased. The proportion of additional electricity must align with the existing pricing system to prevent excessive fluctuations. The electricity volume for a single project's inclusion in the scale can be lower than its total power generation. Mechanism prices are formed through bidding organized by local authorities, initially categorized by technology. Prices must fall within the cap and not exceed the highest bid. The execution period is determined based on the investment recovery period of the project type.

This "old projects, old methods; new projects, new methods" strategy ensures the stability of existing projects while enhancing the vitality of new projects through market mechanisms. It balances the relationship between old and new projects, contributing to the sustainable development of the new energy industry.

The document explicitly states that configuring energy storage systems must not be a prerequisite for the approval, grid connection, or on-grid operation of new new energy projects.

It also emphasizes correcting improper interventions in the electricity market, prohibiting unreasonable cost-sharing with new energy, and ensuring that new energy projects enjoying financial subsidies adhere to the original subsidy standards within the reasonable utilization hours of their entire life cycle.

The removal of mandatory energy storage system requirements for PV projects can significantly reduce costs and initial investments, saving funds for enterprises and investors. Without the restriction of energy storage systems, the approval and construction processes for PV projects are accelerated, shortening construction cycles and improving efficiency.

Economically, this adjustment reduces energy storage costs, enhances project profitability, and attracts more investors. For small and medium-sized enterprises and distributed projects with limited funds, this policy is particularly favorable, boosting competitiveness. Enterprises can also flexibly choose energy storage solutions based on demand and technological advancements, promoting innovation and encouraging the adoption of the most suitable technologies.

Impact Analysis: Changes in the New Energy Industry Amid Reform Waves

1. Resource Allocation and Industry Development

Market-based pricing precisely adjusts electricity resource allocation. The previous fixed electricity price model led to inefficient resource utilization. Now, price signals can quickly reflect market demand, enabling enterprises to optimize power generation plans and improve resource utilization efficiency.

Marketization drives enterprises to reduce costs, improve efficiency, and promote technological innovation and project management optimization, thereby phasing out outdated capacity and achieving industrial upgrading.

2. Reshaping the Power System and Market

With new energy entering the market, it will fairly share the responsibility for power system regulation, contributing to enhanced power system stability. The reform will promote the establishment of a unified national electricity market, eliminate market barriers, optimize resource allocation, and improve market efficiency and competitiveness.

3. Electricity Price Impact