Adding new energy to electricity market key

China's recent notice on promoting the integration of new energy sources into the electricity market further reflects the market value of renewable power through supply and demand dynamics and accelerates China's moves into a national unified power market, said industry experts.

The National Development and Reform Commission and the National Energy Administration issued a notice on Sunday to promote the integration of new energy sources like wind and solar power into the electricity market, highlighting the need to deepen market-oriented price reforms of new energies, ensuring that electricity prices are determined through competitive market mechanisms.

Industry experts believe the integration of new energy into the power grid will be crucial for establishing a unified, efficient and competitive national electricity market in the country.

According to Deng Simeng, a senior analyst for renewables and power research at global consultancy Rystad Energy, the full participation of renewable power in electricity markets means that around 80 percent of China's power consumption and generation will be transacted through competitive markets, significantly up from the 61 percent traded in 2024.

"These measures will enhance the market competitiveness of clean energy, while facilitating the gradual market reform of renewable energy and improve market regulations," Deng said.

Apart from participating in markets, the notice also introduces a price settlement mechanism off the market to offer compensation to renewable projects when prices are lower than the mechanism price set by local government, considering the inherent volatility, intermittency and randomness of renewable energy.

Solar power, for example, when included in the market, will see a lack of generation during evening peak hours that could lead to a substantial revenue fluctuation, hindering the sector's sustainable growth.

To address this, the plan includes a sustainable development price settlement mechanism to compensate the difference when market prices fall below the mechanism price, and deduct the difference when they exceed it.

"This will help address the growing uncertainty of project revenues from a solely market-oriented pricing method and makes the transition more adaptable for renewable companies to further deepen the power market reforms in China," said Deng.

According to Chen Dayu, deputy director of China Huaneng Group Energy Research Institute, the full grid integration of renewable energy is a milestone that indicates the vast majority of electricity generated in China has entered the market, laying a solid foundation for the establishment of a national unified power market. The development of China's power market will be on a fast track, he said.

According to data from the NEA, newly installed capacity of renewable energy in 2024 accounted for 86 percent of China's total newly installed power capacity, while the cumulative installed capacity of renewable energy made up a record high of 56 percent of the nation's total.

Meanwhile, China's renewable energy generation reached 3.46 trillion kilowatt-hours last year with a year-on-year rise of 19 percent, accounting for about 35 percent of total electricity generated.

Wang Lining, director of the oil market department under the economics and technology research institute of China National Petroleum Corp, said that after years of development, China's new energy industry has rapidly grown in scale, particularly in 2024, when the installed capacity of renewable energy generation surpassed that of coal-fired power.