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| Author | Kyle Lin |
| Updated | March 18, 2025 |
On February 9, 2025, China’s National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) jointly issued the Notice on Deepening the Market-Oriented Reform of New Energy On-Grid Electricity Prices to Promote High-Quality Development of New Energy (hereafter referred to as the Notice). This policy promotes the full market-based determination of on-grid electricity prices for new energy sources, including ground-mounted and distributed PV projects, as well as onshore and offshore wind power. The Notice explicitly stipulates that, starting June 1, 2025, all electricity generated from renewable energy projects must be traded through market transactions, thereby further advancing the comprehensive market-oriented reform of new energy on-grid tariffs and facilitating the high-quality development of the industry.
As mandated in the Notice, starting June 1, 2025, all electricity generated by China’s new energy projects must fully participate in the power market and be traded at market prices. This new measure, however, applies only to transactions within a province; cross-provincial and cross-regional transactions of new energy electricity will continue to be executed in accordance with existing relevant policies. The trading mechanism consists of “spot market transactions” and “mid- to long-term market transactions.” The former moderately relaxes price limits in the spot market, with provincial authorities responsible for setting and adjusting the bid price range. The latter shortens trading cycles, increases transaction frequency, and allows both supply and demand parties to flexibly determine pricing settlement and adjustment mechanisms for contracts while also specifying electricity prices and green certificates.
In addition, the Notice designates June 1, 2025, as the official market entry date for electricity transactions. New energy projects commissioned before this date are classified as “existing projects,” while those commissioned afterward are categorized as “newly commissioned projects” (or, simply “new projects”).
The price range for "existing projects" was previously determined and adjusted by relevant provincial authorities, typically set no higher than the local coal-fired power benchmark price. These projects were acquired through either "full guaranteed procurement (fixed tariff)" or a combination of partial guaranteed quantity and price with partial market-based pricing. Newly commissioned projects, on the other hand, will undergo province-wide competitive bidding, following a “lowest-to-highest” bid selection process. The upper limit of the bidding price is typically set based on the green value of the electricity, while the lower limit takes the cost factors into account. Projects with lower bid prices will be selected, but the bidding price must not exceed the provincial bidding cap. If a bid surpasses this limit, it will be adjusted to the maximum allowable level.
Nonetheless, risks of revenue fluctuations and price volatility are likely to intensify as PV generation peaks at midday, potentially leading to an oversupply of electricity and thus driving down selling prices, while nighttime prices may rise due to insufficient generation. As PV electricity becomes increasingly market-driven and government pricing interventions phase out, uncertainties surrounding future market electricity prices will increase, but the actual situation remains to be seen as this policy takes effect. Project costs and generation efficiency will be key determinants of profitability, with cost-competitive and high-efficiency projects having a greater advantage. Companies must also enhance their trading strategies and supporting capabilities to navigate market uncertainties.
The repercussions of this new policy can be assessed by analyzing the impacts of market transactions on residential PV projects in 2024. In April 2024, the NDRC issued the Measures for Regulating the Guaranteed Full Purchase of Renewable Electricity, categorizing the electricity generated from renewable energy sources into guaranteed procurement and market-trade electricity. Since then, marketization has not only accelerated but also become increasingly prevalent. However, market uncertainty has also increased, affecting users’ willingness to install PV systems. According to NEA data, the share of residential PV installations dropped from 20% in 2023 to 11% in 2024, reflecting the impact of market transactions on residential installations. Now, with the full implementation of market-based electricity pricing under the Notice, concerns among residential PV investors are likely to intensify further in 2025.
Regarding C&I projects, in addition to the impact of the Notice on investment returns, the Management Measures for the Development and Construction of Distributed PV Power Generation (hereafter referred to as the Measures), issued by the NEA on January 23, 2025, exerts additional influences. This Measures classifies distributed projects into four categories and imposes installed capacity limits accordingly: 1) natural person residential PV; 2) non-natural person residential PV; 3) general C&I PV; and 4) utility-scale C&I PV projects. Non-natural person residential and general C&I projects must not exceed 6 MW, while utility-scale C&I projects are capped at 50 MW. Additionally, general and utility-scale C&I projects are prohibited from adopting the mode of “full feed-in” but are encouraged to use up all the electricity generated by themselves (i.e., adopting the “self-consumption” mode). General C&I projects above 6 MW, on the other hand, can participate in transactions in regions with continuous electricity market operations. This means that C&I electricity users can no longer rely entirely on electricity sales for profits, impacting investment strategies. With the implementation of market-based transactions in the second half of 2025, investors will likely accelerate installations to mitigate the risk of revenue fluctuations.
In addition to distributed projects, ground-mounted projects are also included in market transactions. However, most of the installed capacity in 2025 is expected to come from the 14th Five-Year Plan and other utility-scale projects, with progress largely unaffected. Currently, Xinjiang has met its installation target, Gansu has achieved over 90% completion, and Inner Mongolia and Shanxi have surpassed 60%. The remaining projects are expected to be connected to the grid within the year. Even with the launch of marketization, ground-mounted projects will continue as scheduled.
Overall, to secure policy benefits for “existing projects,” developers and investors are rushing to complete grid connections before June 1 to avoid projects being classified as “newly commissioned projects,” which would increase investment return uncertainty. All this consideration is expected to trigger another “installation rush.” Regarding project distribution, based on the newly installed capacity data from 2018 to 2024 released by NEA, ground-mounted projects dominated most years, except for 2021 and 2022, when distributed PV accounted for more than 50%. In 2023 and 2024, ground-mounted projects consistently accounted for 56% of new installations, while the share of distributed PV declined from 20% to 11%, and C&I projects increased from 24% to 32%.
Considering the impact of the new market-based transaction policy and other regulatory policies, China's new PV installations in 2025 are expected to be dominated by ground-mounted projects, which are expected to exceed 60%. Meanwhile, residential PV is likely to fall below 10%, with C&I projects stabilizing at around 30%.
*Source：InfoLink Database and China National Energy Administration
The surge in installations may cause phased fluctuations in PV module demand between the first and second half of the year. Currently, manufacturers are adopting a cautious production strategy, bringing module inventory levels back to a healthier balance. However, with a notable increase in Chinese module orders for March and April, some popular formats are experiencing shortages. As a result, module manufacturers are prioritizing domestic supply in the short term, with some choosing to postpone or delay the fulfillment of low-price non-China orders, leading to a reduction in non-China supply.
According to InfoLink's research on recent module shipments, domestic orders in China have seen a slight increase, primarily driven by distributed projects, with C&I projects showing the most significant growth. This indicates that the issuance of the Notice has already triggered a surge in the distributed PV market, leading to an increase of RMB 0.01/W in Chinese spot module prices. Moreover, the availability of low-price sales has continued to decline, with some manufacturers explicitly reducing shipments for orders priced below RMB 0.66/W.
As for utility-scale projects, with only about two months left before market-based transactions take effect, the growth in the first half of the year is expected to be limited, and the installation surge is less pronounced than in the distributed sector. The majority of utility-scale installations are anticipated to be concentrated in the second half of the year.
In general, the market uncertainty brought by the Notice remains high, as its interpretation and execution guidelines are yet to be clearly defined. The document focuses on a broad policy framework, outlining the general strategy for integrating renewable energy into market-based transactions and the basic framework for electricity price settlement. Specific implementation details, however, still depend on further announcements from provincial governments. Currently, the market is still in an initial observation phase, and profitability assessments remain unclear. Therefore, companies need to strengthen risk management, carefully control early-stage investment costs, and mitigate uncertainty to maintain a competitive edge while responding prudently to future policy changes. For leading enterprises, adapting to the transition is relatively easier, but small and medium-sized manufacturers may face greater pressure, potentially accelerating market consolidation and intensifying competition within the industry.
Despite the turbulence caused by the Notice in the renewable energy market, this reform is expected to contribute to the healthy development of China's solar PV market in the long run. First, the market-based trading mechanism aligns with international trends. In the short term, China can draw on the experiences of Germany and Australia. As the mechanism matures, China can even set a global benchmark. Second, requiring renewable energy and coal-fired power to compete in the same bidding process will help integrate national electricity market rules and accelerate the energy transition. Additionally, medium- and long-term market transactions must specify both electricity sales prices and green certificates, highlighting the environmental value of renewable energy. Finally, a clearer development path and a more stable market environment will encourage long-term investment and business expansion for enterprises.
Based on the recent developments in China's PV market, the country’s new PV installations in 2025 are unlikely to see significant growth. In fact, due to the Notice, the introduction of other regulatory mechanisms, and supply-demand mismatches, it is even possible that the market could experience short-term turbulence and corrections over the next one to two years. However, under macro-level policy planning, a certain level of baseline demand is still likely to be maintained. New installations are still expected to reach around 270 GW per year, with total cumulative capacity expected to exceed 1,000 GW.
Regarding long-term demand, as the market gradually adapts to the trading mechanism and the Chinese government continues to prioritize solar PV as a key focus of renewable energy development, PV installations are still projected to sustain an annual growth rate of 5%, though the rapid growth seen from 2022 to 2024 is unlikely to be repeated. By 2030, cumulative capacity is expected to exceed 2,700 GW, further solidifying China’s leadership in the global PV industry.
*Source：InfoLink Database and China National Energy Administration
The updated report features interactive charts for comparing the latest utilization rates, enabling a faster and clearer understanding of capacity utilization status of the solar industry.
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