China’s Renewable Sector Enters New Era with Market-Driven Pricing

China’s National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) recently issued a joint notice outlining measures to deepen the pricing reform for electricity generated from renewable sources.

The reform focuses on three key areas: allowing market forces to determine renewable power prices, creating a pricing and settlement mechanism that supports long-term sustainability, and implementing differentiated policies for existing and new projects.

“This new pricing policy will significantly accelerate the development of a modern power system and ensure the long-term growth of renewable energy,” said Zhang Dayong, deputy secretary-general of the China Association for the Promotion of Industrial Development.

The shift marks Beijing’s move away from subsidy-driven incentives as the renewable energy sector matures. Industry experts consider this transition crucial as China enters a new phase of renewable energy expansion.

China has prioritized new energy sources, such as wind and solar power, introducing a range of supportive policies related to pricing, finance, and industry development. These measures, including fixed pricing mechanisms, have driven a rapid increase in renewable energy capacity.

As of the end of 2024, China’s total installed renewable power capacity had reached 1.41 billion kilowatts, representing over 40 percent of the country’s total electricity capacity and surpassing coal-fired power installations.

Despite this rapid growth, the fixed-pricing model has struggled to reflect actual market supply and demand. Analysts say conditions are now suitable for a transition to market-based pricing, citing declining generation costs and an evolving market that will enhance industry efficiency and ensure sustainable, high-quality growth.

Wind and solar power generation costs in China have significantly decreased, now ranging between 0.2 yuan (about 3 U.S. cents) and 0.3 yuan per kilowatt-hour. Additionally, local electricity markets have matured, with regulatory improvements enabling wider participation.

Song Hongkun, deputy head of the NEA, highlighted the growing role of market forces in power distribution. From January to October 2024, China’s market-based electricity transactions reached 5.08 trillion kilowatt-hours, with the share of market-traded electricity increasing from 17 percent in 2016 to 62 percent. Nearly half of all renewable power generation was traded in the market during this period.

“China’s renewable energy sector is a global leader, but to ensure long-term growth and stability, it must operate in a competitive market environment,” said Liu Manping, an economist at the NDRC. He stressed that market-based electricity pricing is central to this reform.

Experts anticipate that the shift will drive technological advancements in wind and solar power, further reducing costs. However, the transition could lower returns for certain projects, redirecting investments toward non-electric renewable energy applications and fostering broader industry development.

The International Energy Agency (IEA) reports that renewables, driven by solar, are set to supply nearly half of global electricity demand by 2030. Notably, China is expected to contribute nearly 60 percent of the renewable capacity installed worldwide by then, based on current market trends and government policies. As a result, China is poised to hold nearly half of the world’s total renewable power capacity by the decade’s end.