On October 14, 2025, the results of the renewable energy pricing mechanism auction in Shandong Province were announced, marking the first implementation of such a pricing mechanism in the country. The auction revealed that the mechanism electricity for wind power projects was set at 5.967 billion kilowatt-hours with a price of 0.319 yuan per kilowatt-hour, while solar power projects accounted for 1.248 billion kilowatt-hours with a price of 0.225 yuan per kilowatt-hour. These figures not only establish a benchmark for renewable energy projects in Shandong but also signal a critical shift in the national renewable energy sector from reliance on policy subsidies to competition based on capability. This shift opens the door to optimizing the energy structure through price leverage.
The year 2025 is being referred to as the “starting point for renewable energy pricing reform” within the industry as the policy direction becomes increasingly clear. Earlier in the year, the National Development and Reform Commission (NDRC) issued Document No. 136, which emphasized that renewable energy should generally enter the electricity market, moving away from fixed pricing. In September, Document No. 1192 further stressed the importance of promoting local consumption of renewable energy, directly addressing the industry’s core issue of “producing but not being able to use enough.” The results of Shandong’s auction send a clear signal nationwide that marketization of renewable energy is not a short-term experiment but an inevitable path for future development.
One of the most notable aspects of this auction was the disparity between wind and solar power. The mechanism electricity recorded 5.967 billion kilowatt-hours for wind energy compared to 1.248 billion kilowatt-hours for solar energy, highlighting wind’s significant market share. The mechanism price for wind power was 0.319 yuan/kWh, which is more attractive than the solar price of 0.225 yuan/kWh. Zhang Xiaobin, Executive Vice President and Secretary-General of the Shandong Solar Industry Association, acknowledged that the solar auction results were lower than expected. This discrepancy arises from the practical challenges of renewable energy consumption in Shandong, a major player in the renewable sector and a leader in solar capacity.
During peak solar output, which occurs in the afternoon, industrial companies are often on break and residential electricity usage is low, leading to mismatches between generation and consumption, even resulting in negative pricing. Conversely, wind power peaks during the night and early morning, allowing for a complementary relationship between solar and wind, as solar can be utilized during the day and wind at night, alleviating the pressure on the grid. Industry experts generally believe that this is a core reason for the favorable policy outlook for wind power.
The essence of renewable energy marketization is to allow prices to reflect supply, demand, and value. In this auction, the bidding range for wind power was 0.094-0.35 yuan/kWh, with a clearing price of 0.319 yuan/kWh, which is 91% of the upper limit. For solar power, the bidding range was 0.123-0.35 yuan/kWh, with a clearing price of 0.225 yuan/kWh, only 64% of its upper limit, nearly 30% lower than that of wind energy. “After the full market entry of renewable energy, the revenue logic shifts from ‘guaranteed stable income’ to ‘competitive income based on market prices,’ where supply and demand dictate prices. This compels related enterprises to focus more on cost control and technological innovation, pushing the industry from ‘scale competition’ to ‘efficiency competition,'” noted Cao Xiangyang, a senior engineer at the Shandong New Power System Research Center, highlighting the deeper significance of price signals.
This set of prices conveys a clear intention for optimizing the energy structure in Shandong: to guide the stable development of the solar industry, attract more capital into wind energy, and shift the province’s energy structure from “solar dominance” to a collaborative development model involving wind, solar, and storage.
Liu Zhen, the director of the new energy department at Huaneng Dezhou Power Plant, quickly recognized the trend after the price announcement: “This set of price signals provides market guidance for our future efforts in wind energy development.”
The electricity pricing reform in Shandong is not just a single initiative, but a comprehensive strategy combining “supply adjustments at the generation end with consumption promotion at the user end.” The mechanism prices guide energy structure adjustments, while the “five-segment” time-of-use pricing matches renewable energy output at the consumption end. Together, they address the core issue of “producing but not being able to use” renewable energy.
The “five-segment” time-of-use pricing divides the day into five periods: peak, flat, valley, and deep valley, implementing differentiated pricing with higher rates during peak times and lower rates during off-peak periods. For residents, this translates to significant savings on electric vehicle charging. Dong Bolei, a pricing specialist at the Jinan Tianqiao Power Supply Center, illustrated this with an electric vehicle charging example: “From 11 PM to 7 AM is the low valley period with a price of 0.385 yuan/kWh, and during certain months, there are even deeper valley periods at 0.222 yuan/kWh, which is only a quarter of the peak period rate. Over a year, if a vehicle with a 60 kWh battery charges primarily during the deep valley periods, the cost can be kept around 600 yuan.” For businesses, the fluctuations in time-of-use pricing offer even greater savings opportunities. Peak period prices can rise by 70% and 100% during peak times, while off-peak prices can decrease significantly, sending clear price signals. High-energy-consuming enterprises can save considerable costs by adjusting their production processes monthly.
In 2024, guided by time-of-use pricing, Shandong’s capacity for consuming renewable energy during the afternoon increased by 5.8387 million kilowatts, and the load during evening peak hours was shifted by 2.2551 million kilowatts. During this year’s peak summer period, the total network load in Shandong exceeded 100 million kilowatts for 72 days, reaching a historical peak of 130.21 million kilowatts. This mechanism has effectively addressed the transient supply gap during peak hours and alleviated grid pressure.
The “Shandong model” offers a replicable path for market-oriented reform in renewable energy. The marketization reform of renewable energy is not simply about price liberalization, but about institutional design that enables each market participant, including power generation companies, users, and the grid, to find sustainable value coordinates in the energy system transition. In the past, the development of renewable energy relied on “benchmark pricing + full grid access,” providing predictable returns and driving rapid growth in installed capacity. However, with the surge in renewable energy installations, the pressure on the grid for peak regulation has increased sharply, especially with solar power’s concentrated output leading to frequent instances of negative pricing. The question of “who will absorb this energy” has become a bottleneck for industry growth.
The NDRC’s Document No. 136 promotes the full market entry of renewable energy, yet expectations for project pricing have remained unclear across various regions. As a major economic and electricity-consuming province, Shandong has established a reference point for the national renewable energy investment market through the competitive pricing of wind and solar energy. This transformation presents new requirements for the entire supply chain within the industry. On the generation side, there is a need to accelerate “flexibility upgrades,” such as integrating energy storage and participating in ancillary services markets to earn peak regulation revenues. On the consumption side, there should be a push for “demand-side response” to consume more electricity during low price periods, thus absorbing green energy and reducing costs. On the system side, there is a need to layout “integrated source-grid-load-storage” and “virtual power plants” to enhance the efficiency of the power system.
In this transformation, the role of energy storage has been fundamentally reshaped. As instances of negative pricing for solar power become more common during peak output, the asset value of solar power plants without energy storage will significantly diminish, even posing existential risks. Lin Hua, General Manager of Shandong Guodian Investment Energy Marketing Co., analyzed, “The short-term full market entry of renewable energy may cause disruptions in the energy storage sector, particularly with independent energy storage investments becoming more rational. However, in the long term, as Shandong relaxes market price limits and implements capacity compensation mechanisms, opportunities for development will arise in areas like grid-connected energy storage, renewable energy-integrated storage, and direct green energy connection projects.”
Currently, the renewable energy market is quietly changing, transitioning from a phase of “scale competition” to one focused on “quality competition.” The price reform is reshaping the investment ecosystem in renewable energy, marking the start of a new era where load management is paramount.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/chinas-first-mechanism-electricity-price-for-renewable-energy-key-signals-and-market-implications/
