China to switch from FITs to market-oriented renewables pricing

China will replace its feed-in tariff (FIT) system with a fully market-driven renewable energy pricing model by June 2025, shifting wind and solar projects to competitive bidding and market transactions. The reform aims to enhance competition but raises uncertainty over future returns for investors.

China’s National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) have issued a directive to accelerate market-based pricing for renewable energy, including wind and solar power.

The reform will overhaul how energy from these sources is priced and traded, with significant implications for developers and investors.

Starting June 1, 2025, all electricity from renewable energy projects must be sold through market transactions, replacing the current feed-in tariff system with market-driven pricing.

Projects can either submit bids for pricing and output or accept the prevailing market rate.

For projects commissioned before June 2025, the transition will follow a price-difference settlement mechanism, aligning grid connection pricing with current policy. New projects starting after the deadline will have power purchase agreements adjusted dynamically based on local renewable energy targets, with pricing set through competitive bidding.

The NDRC and NEA held a press conference outlining the policy’s three key components:

1. Full market pricing: Renewable energy will be sold primarily through market transactions, with prices set by supply and demand.

2. Sustainable price settlement mechanism: A system will ensure long-term pricing stability for renewable energy projects.

3. Differentiated treatment for existing and new projects: Existing projects will retain pricing under current policies, while new projects will shift to market-based rates.

China’s renewable energy pricing has evolved through multiple phases.

Between 2014 and 2017, PV projects operated under fixed-price tariffs and regional subsidies, ensuring stable returns and attracting investment.

Mounting subsidy costs led to a shift in 2018 toward competitive bidding, where winning bidders secured subsidies at significantly lower rates, intensifying market competition and pushing developers to cut costs.

By 2020, falling solar costs allowed some renewable projects to achieve “grid parity,” aligning with coal-fired power prices. This led to nationwide pricing standardization and incentives for trading in the spot electricity market. However, fluctuating revenues prompted further government intervention, including green certificate trading, to support struggling projects.

The latest reform marks the biggest shift in renewable energy pricing since 2018. Industry analysts say that while the policy aligns with broader market-based reforms, its scale has surpassed expectations.

A key concern is uncertainty over how provincial governments will implement the market mechanism. Post-June 2025 pricing remains unpredictable, though analysts expect prices to decline. This uncertainty may trigger a surge in project installations before the deadline, but the market’s likely trajectory after that point is still unclear.