CHINA Law and Practice Contributed by: Yan Gao, Yilin Wang and Zhuohui Li, Zhong Lun Law Firm
between medium and long-term and spot trading, and adding dedicated provisions on green power trad- ing, capacity compensation and cross-regional joint trading. The Implementation Opinions of the General Office of the State Council on Improving the Unified National Power Market System set a target of achiev- ing a spot market with national coverage and market- based transactions accounting for 70% of total elec- tricity consumption by 2030. A series of new electricity pricing regulatory instru- ments came into effect in late 2025, led by the Meas- ures for the Supervision and Audit of Costs for Power Transmission and Distribution Tariffs (NDRC, effec- tive 1 December 2025). These instruments establish a strict regulatory framework for the grid’s interme- diate segment, implementing rigorous cost auditing, prohibiting the transfer of non-core costs, introducing two-part tariffs, applying performance-linked pricing for cross-regional transmission, and requiring inde- pendent accounting of ancillary grid businesses to prevent cross-subsidisation. The NDRC and NEA also issued the Circular on Pro- moting the Orderly Development of Green Power Direct Connection for Multiple Users (NDRC and NEA, effective 20 May 2026), requiring green power from wind and solar facilities to be supplied directly to mul- tiple enterprises via dedicated lines to facilitate local consumption and reduce operational costs. 1.8 Unique Aspects of the Power Industry China’s power industry stands out with a unique blend of progressive market reform, strong policy ori- entation, a continuously improving legal governance framework and energy transition priorities. On the generation side, China maintains an open investment regime, welcoming diverse investors. On the retail side, end-users enjoy the freedom to choose retail suppliers, driving a competitive market. In contrast, transmission and distribution are treated as regulated natural monopolies, with grid operators acting as pub- lic utilities whose tariffs are subject to strict regulatory scrutiny, ensuring open and non-discriminatory grid access. In recent years, China’s power legal system has undergone accelerated evolution. Anchored by the
newly enacted Energy Law, supporting regulations governing electricity markets, renewable energy grid integration, energy storage and green power trading are being progressively developed. China stands as one of the world’s largest and fastest-growing mar- kets for renewable energy and flexible resources, with wind and solar capacity growing steadily and emerging sectors such as energy storage and virtual power plants flourishing, supported by a continuously improving regulatory framework.
2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market Market Structure
China has established a unified, hierarchically co- ordinated wholesale electricity market. The wholesale market operates primarily on market-based pricing, with generation-side prices determined through cen- tralised bidding and cleared by power trading insti- tutions on a security-constrained economic dispatch basis. Guaranteed supply, residential and agricultural electricity continue to be subject to government-set tariffs. The NEA and its local offices exercise statutory supervision over market transactions, price formation and competitive behaviour. Energy Market and Capacity Market China operates energy and capacity markets, sup- ported by ancillary services markets. The energy mar- ket comprises medium and long-term markets, which conduct annual and monthly contract trading to lock in the majority of electricity demand, and spot markets covering day-ahead, intraday and real-time trading. Most regions currently apply a unified nodal clearing price. The capacity market provides compensation for available generation capacity under instruments including the Notice on Establishing a Coal Power Capacity Tariff Mechanism (NDRC and NEA, effec- tive 1 January 2024), incentivising power investment and reliable supply capacity maintenance. Ancillary services markets provide frequency regulation, peak shaving and reserve services, with eligible participants including storage facilities and virtual power plants.
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