Developments in Industrial and Commercial Electricity Pricing and Energy Storage under Document 136

On April 25th, Xiamen New Energy Technology Co., Ltd. held a launch event in Hangzhou for its “Be Friends with Time” full lifecycle closed-loop solution for industrial and commercial energy storage. During this event, Xiamen New Energy, in collaboration with its ecological partners, introduced a comprehensive solution encompassing “development, construction, investment, equipment, operation, insurance, and recycling,” which received significant recognition within the industry. More than 60 companies signed strategic cooperation agreements on-site, propelling the future development of industrial and commercial energy storage.

Mr. Huang Chuan, also known as “Master Huang,” was invited to this conference, where he shared insights on the topic of “Industrial and Commercial Electricity Prices and Energy Storage Development under Document No. 136.” With the permission of the organizers, the transcript of his speech and associated materials are now shared for reference.

Hello everyone, I am Huang Chuan, previously with the State Grid, and now fully engaged in content creation. I run a public account and video channel called “Master Huang Speaks Electricity.” I am delighted to participate in this energy storage conference and hope my insights will be helpful.

The title of my presentation is “Industrial and Commercial Electricity Prices and Energy Storage Development under Document No. 136.” This topic revolves around two main aspects: the Document No. 136 related to renewable energy and the energy storage of industrial and commercial users. Although there is no direct connection between the two, we need to identify a bridge to link them, allowing the crucial industry document for 2025 to guide the development of industrial and commercial energy storage. I believe that the electricity prices for industrial and commercial users can serve as this bridge. Ultimately, any reforms related to electricity prices will be reflected in the electricity prices faced by industrial and commercial users, and the time-based price differences of these prices are vital sources of revenue for industrial and commercial energy storage.

First, let’s examine the impacts of the Document No. 136 on the electricity prices that industrial and commercial end-users receive. We can start with the settlement formula shown in a specific diagram, which summarizes the revenues from renewable energy generation. This is divided into market transactions within the site and compensations from external mechanisms. The lines below indicate the effects on electricity prices for industrial and commercial users. We know that the red line on the far right indicates that the external mechanism compensation will be included in the system operation fees, as specified in the document. Therefore, after the implementation of Document No. 136, industrial and commercial users will see an additional secondary item in their system operation fees. However, how much this discount will be is still uncertain. I have attempted a rough quantification.

Document No. 136 mentions that the amount of electricity included in compensation each year is linked to the local non-hydropower renewable energy consumption indicators. For the sake of this analysis, let’s assume that all consumption indicator electricity is included in the mechanism. The compensation difference per kilowatt-hour equals the mechanism price minus the real-time trading average price of similar projects. We will initially use the local coal-fired benchmark price as the mechanism price, while the trading average distinguishes between wind and solar power. Data from the 2024 spot market shows that the real-time average price for wind power is consistently higher than that for solar power, meaning that the compensation difference for wind power is lower than for solar power. This total compensation burden falls on industrial and commercial electricity consumption. According to the China Electricity Council, the total electricity consumption of the secondary and tertiary industries in 2024 accounted for 83.45%. We can estimate this discount using these figures. If these projects are all wind power, the settlement difference will be smaller, resulting in a smaller discount. Conversely, if they are all solar power, the difference and compensation discount will be significantly higher. Although my quantification involves many assumptions, it still results in a few cents, as different regions have varying consumption indicators. Regions with a higher percentage of indicators, such as western and northern provinces rich in renewable energy, will face greater subsidy pressures than eastern and central provinces.

Next, let’s discuss the second impact, which concerns cross-subsidies. Cross-subsidies are borne by industrial and commercial users to compensate for the electricity costs of residential and agricultural users. Residential and agricultural users are categorized as priority users, which means they are matched first with lower-priced power sources. Previously, the guaranteed purchase quantity from renewable energy was within this priority sequence, typically at the level of local coal-fired benchmark prices. However, now all electricity quantities have transitioned to market-oriented pricing, thus elevating the purchase costs for residential and agricultural users. Nevertheless, these users still adhere to lower directory rates, leading to an increase in the cross-subsidies involved. This is reflected in the home electricity prices of industrial and commercial users as new gains and losses from cross-subsidies in the third regulatory cycle and the base cross-subsidy in the fourth regulatory cycle for transmission and distribution prices.

The third impact relates to market sharing costs. The operation of an electricity market entails not only trading costs between suppliers and consumers but also expenses that certain entities must bear, such as cost compensation, assessment, structural deviation, and ancillary service fees. For instance, in terms of cost compensation and ancillary services, these shared costs were previously directed towards non-market-oriented power and all industrial and commercial electricity. With the enforcement of Document No. 136, all renewable energy power now falls under market-oriented pricing, eliminating the non-market category. This means that the denominator for shared costs has decreased, while industrial and commercial users remain as sharing entities, thus increasing their burden.

The last impact involves trading prices. There is a common misconception that the complete transition of renewable energy to the market under Document No. 136 will immediately lower prices in the electricity spot market. This understanding overlooks the time factor, as there will be no immediate effect in the short term. The clearing price in the electricity market is based on all electricity, including the non-market portion, rather than solely on market-oriented power. Regardless of whether it is market-oriented, the marginal cost of renewable energy is zero, placing it ahead in the clearing sequence. Therefore, the future electricity prices will not be influenced by the status conversion of existing renewable energy but rather by the influx of more incremental renewable energy into the market. This is illustrated in a diagram with two curves; the increase in incremental renewable energy will displace a portion of thermal power’s market share, reducing the clearing prices during certain trading periods. However, Document No. 136 also states that the restrictions on spot market prices will be relaxed. If this occurs first, the increase in the maximum bid price will temporarily raise overall market prices, since the high-priced trading periods are determined by thermal power.

To summarize, Document No. 136 will impact the electricity prices faced by industrial and commercial users in four main areas. These include potential short-term increases in trading prices due to relaxed spot market prices, the inevitable appearance of a compensation difference in system operation fees, an increase in cross-subsidies, and rising market sharing costs—none of which are favorable outcomes. Clearly, the five components that comprise the electricity price for industrial and commercial users—trading price, transmission and distribution price, line loss fee, system operation fee, and additional funds—will all directly or indirectly contribute to the costs of renewable energy. Thus, under the national energy transition and requirements for energy security, the social responsibilities shouldered by industrial and commercial users are indeed significant.

Now that we understand the electricity price faced by industrial and commercial users, we can view it as the unit electricity price, representing the prices during normal periods. The time-based electricity prices, which are highly relevant to industrial and commercial energy storage, are developed based on these normal period prices. Let us now discuss the current time-based electricity prices available.

We also recognize that industrial and commercial users have three procurement methods for electricity. They can either be direct trading wholesale users, which requires a threshold and currently has few participants, or they can be electricity procurement users represented by the grid, where time-based prices are clearly published monthly. The larger segment consists of retail users represented by electricity sales companies, which are the primary group for industrial energy storage project development. Therefore, we will focus on the time-based prices related to this group.

A four-quadrant diagram helps to illustrate how a specific electricity sales company provides a certain retail user with a retail package, ultimately forming the retail electricity pricing structure. A flat rate means a single price, from which the time-based price is subsequently determined. The time-based pricing automatically segments itself, eliminating the need for coefficient multiplications. The price formation can either be fixed or linked to electricity market prices. If it is a direct retail time-based price, the remaining transmission and distribution price, line loss, system operation fees, and funds may fluctuate based on local rules. For example, in Shandong, the line loss, capacity compensation, and system operation fees, including coal power capacity fees and pumped storage capacity fees, are subject to fluctuation, while the others remain stable. If it is a single retail price, this price combines with other charges to form the normal period electricity price, which is then adjusted according to local time-based pricing policies to determine the final time-based electricity price for users. The elements that must be multiplied by fluctuation coefficients depend on regional regulations; for instance, in Zhejiang, all components are subject to fluctuation.

By analyzing the current retail electricity prices and administrative time-based policies in various provinces, we can identify some trends. Retail electricity prices are increasingly correlated with wholesale spot prices, effectively squeezing the profit margins of electricity sales companies. However, due to the currently high proportion of medium to long-term contracts and the lack of apparent price differences in medium to long-term time-based pricing, the direct transmission to end-user prices does not show significant time-based differences, as evidenced by Hubei.

To maintain a reasonable time-based price difference at the end-user level, administrative time-based pricing policies still have their historical mission, and the price differentials valued by industrial energy storage will continue to exist in certain central electricity provinces for an extended period.

Since today’s conference is held in Hangzhou, it is worthwhile to discuss Zhejiang’s retail rules and time-based pricing for 2025, which are quite intriguing. This diagram of time segments and fluctuation coefficients is familiar to friends from Zhejiang, as it was gradually implemented in March of last year. In January, excluding the deep valley prices during New Year’s Day and Spring Festival, there are four rate segments: peak, flat, valley, and deep valley. The latter half of the night features a continuous 8-hour valley segment, followed by 2 hours of peak time in the morning, then a valley segment for 2 hours at noon, and finally 2 hours of peak time in the afternoon. This charging and discharging cycle positions Zhejiang as a highly competitive area for industrial energy storage applications.

In the trading framework for 2025, one notable change is that after obtaining the flat rate, the time-based settlement price will be derived from the differences between the peak, high, low, and deep valley prices applicable to the same voltage level and user type. This means that regardless of the retail package price—whether 0.03 yuan or 0.5 yuan—the price differences between different time segments are standardized to those of other users of the same type. After obtaining the flat rate price in 2024, a fluctuation coefficient will be applied to form the final time-based electricity price for users, which is a multiplication process. In 2025, after acquiring the flat rate price, a fixed time-based price differential, determined by others, will be added to it, transitioning to an addition process. This represents a significant change in Zhejiang’s retail approach, marking a national first.

Another national innovation is the retail reference electricity price. This excerpt from Zhejiang’s retail rules outlines how the retail reference electricity price is formed—though it is described with many formulas that may be difficult to understand, it can be summarized as follows: electricity sales companies define package rules but cannot set the final specific price. Each retail user faces the same 48-point retail time-based reference price per month, equating to one reference price for every half-hour, determined entirely by the market. Subsequently, by analyzing their actual electricity consumption over the month across these 48 time segments, they derive their unique retail reference price. This is the essence of Zhejiang’s retail structure, where every user may have a distinct price.

In January, all retail users in Zhejiang encountered the same 48-point retail time-based reference price, with the lowest point occurring from 11:30 AM to 12 PM at around 0.3 yuan, and the highest point just after 11 PM at a little over 0.5 yuan. The overall arithmetic average price hovers around 0.4 yuan. Therefore, if a user’s monthly electricity consumption profile is flat, they would have a retail reference price of approximately 0.4 yuan. Conversely, if a user consumes electricity solely during the midday segment, their retail reference price would be around 0.3 yuan, representing the lowest possible price. Conversely, if a user only consumes during higher-priced time slots, their retail reference price would align with the maximum value of over 0.5 yuan. Thus, while the distribution of electricity consumption varies across the 48 segments, the final retail reference price will always fall within this minimum and maximum range.

Why is this important? Consider that the formation of today’s retail reference price in Zhejiang is influenced by the distribution of user consumption across the 48 time segments. If electricity consumption is high during lower-priced time segments and low during higher-priced intervals, the retail reference price available to users may decrease. Furthermore, the role of industrial energy storage—specifically peak shaving and valley filling—could potentially lower the settlement electricity price based on time-based pricing. However, this is not always guaranteed! Considering the time segments for January’s 24-hour breakdown, we find that the lowest time-based reference price indeed occurs during the administrative valley periods, while the highest does not. The peak during the evening is categorized as an administrative flat period. When analyzing charging during midday valleys and discharging during afternoon peaks, we see that this strategy may shift relative higher reference price electricity into relatively lower segments. However, since the afternoon peak prices often do not significantly exceed the average price, this shift may not reduce the overall retail electricity price; rather, it could increase it if the charging periods are placed in higher-priced slots.

This complexity highlights the point I wish to convey in this final section: potential transformations in the future of industrial energy storage and distributed photovoltaic project development. The focus will shift from merely meeting basic needs to identifying developers with robust technical capabilities and comprehensive service awareness. Project development will transition from standalone industrial energy storage projects to integrated small microgrids that combine solar and storage, ultimately forming aggregated resources that can constitute a virtual power plant.

When addressing the concept of virtual power plants or microgrids, two critical aspects emerge: the down-grid and up-grid electricity. The goal for down-grid electricity is to reduce costs, thereby lowering users’ electricity expenses; for up-grid electricity, the aim is to enhance generation revenues, transforming consumers into producers. Achieving these goals requires that the exchange power on the grid side be controllable, responding to market price signals and becoming “smart” electricity. Among all resources in the user domain, storage remains the most flexible and controllable resource. Therefore, even if it is no longer about developing independent storage projects, storage will still serve as the critical control point across all user resources.

Participation of virtual power plants in market trading may be a distant prospect, but this does not hinder us from establishing resources, managing assets effectively, and controlling electricity costs. Industrial energy storage can significantly impact users’ electricity costs—whether in retail pricing, energy fees, basic fees, or power adjustment fees, whether concerning energy demand, capacity, reactive power, or active power, it possesses immense potential.

Furthermore, an industrial energy storage solution can not only contribute to peak shaving and demand regulation but also facilitate short-term soft capacity expansions, improve energy quality, and ensure power supply for critical loads during outages. Realizing this value requires developers to possess keen insight to identify diverse scenarios, along with advanced technical capabilities and superior storage products.

Thus, merely understanding peak and valley pricing is no longer sufficient for the development of industrial energy storage in this new era. It demands a broader connection to electricity market trading and user electricity management, raising the bar for practitioners in the field. However, once the cognitive threshold is surpassed, the resulting business moat will deepen and widen. As a developer, will you choose to enter a crowded space with lower barriers to entry, or will you embark on a path that requires patience, accumulation, and long-term commitment? Perhaps, as today’s theme suggests, only time can provide us with the answer. Therefore, choosing to be friends with time, cultivating patiently, and awaiting fruitful outcomes may be the better choice.

Thank you for your attention. This concludes my presentation. I am Huang Chuan, known as Master Huang.