Solar power plant located in Dunhuang, China. (Photo: Unsplash)

China will end its fixed pricing mechanism for renewable energy and require electricity generated from such sources to be sold at market-determined rates. The new policy was announced via a government notice issued on Feb. 9 by the National Development and Reform Commission and the National Energy Administration.

The move marks a shift away from a system that has provided stable revenues to energy generators in order to attract investment – one that has underpinned China’s renewable energy sector for years. 

Under the new policy, electricity prices will be set through market-driven bidding. New projects will be subject to the rules starting from June. This will be followed by a gradual transition to full marketisation.

Authorities said the shift aims to ensure prices “more accurately reflect market supply and demand” as renewable energy capacity surpasses that of coal in China’s power mix. 

The policy change is also expected to improve efficiency of electricity distribution and spur investment in auxiliary services such as energy storage and peak-load regulation, Caixin reports.

Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air (Crea), said the reforms could accelerate clean energy development by lowering prices and increasing the appeal of clean electricity for buyers and grid operators. 

However, he warned that renewable energy producers will now be competing against thermal power plants, which continue to benefit from long-term contracts and capacity payments. The latter refers to fixed sums that the plants receive based on installed capacity rather than power generated.

The long-term impact of the policy on China’s renewable sector will be dependent on implementation at the provincial level as well as how firms adapt to a more dynamic pricing environment, Myllyvirta noted. The notice has directed local governments to develop their own transition plans by the end of 2025.

• This article was originally published on Dialogue Earth under the Creative Commons BY NC ND licence. Read the original article.