China has taken several new steps to deepen electricity market reform and strengthen power system reliability as renewable energy continues to expand rapidly. Recent policy developments focus on strengthening the medium- and long-term electricity market while refining capacity payment mechanisms for system-critical generation and storage.
In December 2025, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) issued the “Basic Rules for the Medium- and Long-Term Electricity Market”, providing a unified national framework for the operation of China’s medium- and long-term power market and updating the previous rules released in 2020. The update reflects the evolving needs of China’s power system as renewable energy penetration increases, and the country accelerates the development of a unified national electricity market.
Medium- and long-term contracts remain the backbone of China’s electricity market. In 2025, electricity traded through these contracts accounted for more than 95% of total nationwide market transactions, highlighting their key role in stabilising prices and reducing short-term market volatility.
Compared with the 2020 rules, which mainly focused on trading arrangements, the new framework upgrades medium- and long-term trading into a more comprehensive system-level market mechanism. The rules cover market access, trading organisation, contract execution and settlement, information disclosure, and risk management, while strengthening coordination with the power spot market.
The updated framework introduces more flexible trading arrangements, including multi-year, annual, monthly and intra-month contracts, as well as mechanisms supporting continuous trading. It also improves cross-provincial transaction arrangements and clarifies participation rules for new market participants such as renewable generators, energy storage operators and virtual power plants. These changes aim to enhance the ability of the medium- and long-term market to respond to changing system conditions and support the integration of variable renewable energy.
In parallel, China is advancing broader market-oriented electricity pricing reforms. On the demand side, 11 provinces have implemented or announced the removal of administratively fixed time-of-use tariffs for industrial and commercial consumers. Electricity retail prices are increasingly determined by market conditions, with settlement periods shifting toward monthly pricing or, in some pilot cases, near real-time settlement intervals of 15 minutes. The reform aims to strengthen price signals, encourage demand-side flexibility, and improve alignment between electricity consumption and system supply conditions.
On the supply side, the NDRC and the NEA have also refined the power generation-side capacity payment mechanism. Under the updated regulation, dispatchable and regulating resources, including coal-fired and gas-fired power plants, pumped hydro storage, and new energy storage technologies, will receive capacity payments linked to their ability to provide reliable peak-load supply. The mechanism is intended to address system adequacy and reliability challenges associated with the rapid growth of variable renewable energy.
At the same time, provincial authorities are expected to conduct assessments of user affordability as a prerequisite for capacity compensation and new project approvals. As regional power spot markets move toward continuous operation, provinces will gradually establish standardised reliable capacity compensation mechanisms supported by strict performance evaluation of power units.
Taken together, these policy measures combine stronger market-based price signals on the demand side with targeted capacity incentives for reliable generation and storage resources. The reforms reflect China’s broader effort to design electricity markets capable of maintaining system stability while accommodating a rapidly growing share of renewable energy.
