An aerial drone photo taken on Jan. 6, 2025 shows a partial view of the Shichengzi photovoltaic power station in Hami City, northwest China's Xinjiang Uygur Autonomous Region. [Photo/Xinhua]

China is accelerating the market-oriented reform of its renewable power pricing system in a bid to build a new power system and promote the sustainable development of renewable energy generation.

The National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) recently issued a joint notice on deepening the pricing reform for electricity generated from renewable energy.

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

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

Industry experts believe this reform is essential as China enters a new stage of renewable energy development.

China highly values the new energy sector, such as wind and solar power, rolling out an array of favorable policies spanning pricing, finance and industry. The supportive measures, including a fixed pricing mechanism, have led to exponential growth in renewable energy capacity.

At the end of 2024, the country's total installed renewable power capacity reached 1.41 billion kilowatts, accounting for over 40 percent of its total electricity capacity and surpassing coal-fired power installations.

Despite this rapid expansion, the existing fixed-pricing mechanism for renewable power has struggled to reflect real market supply and demand dynamics.

Conditions are now ripe to shift to market-based pricing, analysts said, citing falling power generation costs and an evolving market and predicting that the reform will enhance industry efficiency and ensure sustainable high-quality growth.

The costs of wind and solar power generation in China have dropped significantly compared to early development stages, now ranging between 0.2 yuan (about 3 U.S. cents) and 0.3 yuan per kilowatt-hour. Meanwhile, local electricity markets have matured, with improved regulations facilitating broader participation.

Song Hongkun, deputy head of the NEA, has highlighted the increasing 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 rising from 17 percent in 2016 to 62 percent. Notably, nearly half of all renewable power generation was traded in the market.

"China's renewable energy sector has taken a lead in the world, but to ensure long-term strength and healthy development, it must be tested in a competitive market environment," said Liu Manping, an economist of the NDRC, stressing that market-based electricity pricing is at the heart of this reform.

Experts predict that the market-oriented push will drive technological advancements in wind and solar power and further reduce costs.

At the same time, it could lead to lower returns for some projects, steering social capital toward non-electric renewable energy applications, which will help foster the growth of China's broader renewable energy ecosystem, Zhang said.