Power Struggles in the Energy Sector: Navigating New Policies and Market Futures

In recent months, particularly since the beginning of 2024, the national regulatory authorities have introduced a series of policy documents concerning the power industry. These documents are highly specialized, and stakeholders within the industry have been actively studying, understanding, and digesting their content.

On September 7, 2023, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) released the “Basic Rules for the Power Spot Market (Trial)” (NDRC Energy Regulation [2023] No. 1217). Following this, on February 8, 2024, they published a notice regarding the establishment and improvement of the pricing mechanism for auxiliary services in the power market (NDRC Price [2024] No. 196). On March 18, 2024, the NEA issued the “2024 Energy Work Guidance Opinion” (NEA Planning No. 22). On the same day, the NDRC revised and released the “Regulatory Measures for the Full Guarantee of Renewable Energy Purchases” (NDRC Decree No. 15 of 2024). Subsequently, on May 14, 2024, the NDRC published the “Basic Rules for the Operation of the Power Market” (NDRC Decree No. 20 of 2024). Further, on July 10, 2024, they released a notice regarding the responsibilities and weight for renewable energy consumption in 2024 (NDRC Office Energy [2024] No. 598). On July 25, 2024, the NDRC, NEA, and the National Bureau of Statistics jointly published the “Action Plan for Accelerating the Construction of a New Power System (2024-2027)” (NDRC Energy [2024] No. 1128). On November 25, 2024, the NDRC issued the “Regulations on the Security Protection of the Power Monitoring System” (NDRC Decree No. 27). In early 2025, the NEA announced the “Management Measures for the Development and Construction of Distributed Photovoltaic Power Generation” (NEA New Energy Regulation [2025] No. 7) on January 17, followed by a notice on February 9, 2025, concerning the deepening of market-oriented reforms for the pricing of new energy grid connections (NDRC Price [2025] No. 136), and on April 11, 2025, a notice on accelerating the development of virtual power plants (NDRC Energy [2025] No. 357). Finally, on April 23, 2025, the NEA published the “Basic Rules for the Power Auxiliary Service Market” (NDRC Energy Regulation [2025] No. 411).

The flurry of documents released by the power industry signifies not only a shift in regulations but also a process of redistributing interests among the relevant stakeholders. From a policy research perspective, several questions arise: Are the conditions for implementing these policies mature? Who stands to benefit from these policies, and who may suffer losses? Which stakeholders will experience short-term and long-term gains or losses? Additionally, in the long term, can the overall social welfare resulting from the beneficiaries outweigh the losses incurred, thus achieving a Pareto improvement rather than a deterioration? What are the core points of these series of policies?

Each of these policies has its own emphasis; some are macro and directional, while others focus on execution and practicality. However, the majority of these policies revolve around a central theme: “power marketization”—how to plan, reform, promote, construct, and operate a safe, efficient, and green power market.

Safety is the Lifeline of the Power System

On April 28, 2025, a massive blackout occurred in Spain and Portugal, affecting over 50 million people on the Iberian Peninsula. The power outage lasted nearly 10 hours, gradually restoring supply around 9 PM. At approximately 12:33 PM on the same day, the Spanish grid detected “extremely strong oscillations,” causing a sudden drop in grid load of about 60% (approximately 15 GW). This led to the disconnection of the Iberian Peninsula grid from the European main grid, triggering a cascading failure. The extensive blackout resulted in transportation disruptions, with 116 trains canceled across Spain, the Madrid metro evacuating crowds, and airport flights delayed. In Portugal, traffic signals failed in several areas, public services were halted, hospitals activated emergency power, and communication services were interrupted. Citizens were forced to rely on radios for information, leading to chaos as basic needs such as food, lighting, and communication were compromised; supermarket shelves were emptied, and canned food, drinking water, and candles became scarce. This incident marked one of the most severe power outages in Europe in nearly two decades, highlighting serious warnings regarding power safety in the energy transition process across nations. Similar incidents continue to unfold in various countries, with varying scales and impacts.

In the second half of 2021, over 20 provinces and municipalities in China faced significant power shortages, prompting authorities to implement “orderly power supply” measures. In late September 2021, the northeastern region of China (Liaoning, Jilin, Heilongjiang) experienced a drastic drop in wind power output, with the power supply gap expanding from 5%-10% to 10%-20%, reaching a “severe level.” The frequency of the northeastern grid fell below the safety threshold of 49.8 Hz, risking collapse, and forced power rationing. From June to August 2022, a combination of drought and regional heatwaves led to large-scale “orderly power supply” measures in the Sichuan-Chongqing area. As the scale, proportion, and distribution of renewable energy power increase, the safety of the power system faces greater challenges.

Efficiency is the Main Theme of the Power Market

The efficient operation of the power industry across upstream, midstream, and downstream segments requires ensuring that upstream power generation companies are profitable, enjoy relatively stable investment returns, and maintain enthusiasm for ongoing investments. At the same time, downstream users should benefit from more economical, safe, accessible, and equitable electricity consumption, with average electricity prices remaining relatively stable or even declining, thereby expanding consumer welfare. Furthermore, midstream grid companies are expected to proactively address shortcomings, undertake upgrades, and intelligently enhance services for upstream and downstream stakeholders. Between 2021 and 2023, thermal power companies (coal and gas) that account for over 65% of China’s power generation have faced prolonged losses, posing significant risks to the efficiency and safety of the power market. Concurrently, the integration and absorption of renewable energy face increasing challenges.

According to the “Action Plan for Accelerating the Construction of a New Power System (2024-2027),” numerous large-scale projects in the northwest and north-central regions of China are expected to be completed. However, is long-distance ultra-high voltage transmission the safest, most efficient, and cost-effective option? How can upstream power station investments be secured? On one hand, as coal supply increases and prices decline, the power generation costs for thermal power companies are expected to significantly decrease in 2024. On the other hand, the manufacturing of wind and solar energy equipment has seen severe competition, with prices falling to historical lows. Stakeholders are concerned about whether the benefits of lower upstream costs will extend to downstream electricity users. If these benefits do not trickle down, where will they go?

In recent years, the operational performance of two major midstream grid companies has also been underwhelming. Their net asset return rates have fallen below the interest rates on bank loans, and some provincial grid companies are even operating at a loss. A significant portion of their profits does not stem from their core business but rather from auxiliary services, raising concerns about potential losses of state assets. An efficient power market means that upstream manufacturing and generation companies, midstream grids, downstream users, and related entities can all profit sustainably, leading to enhanced overall social welfare.

Green is the Ultimate Goal of Energy Transition

The new power system is characterized by a high proportion of renewable energy, integrating advanced energy technologies, digital intelligence, and flexible market mechanisms to achieve a modern, clean, low-carbon, safe, efficient, and intelligent power system. Its core objective is to support the “dual carbon” strategy (carbon peaking and carbon neutrality) and drive the transformation of the energy structure. Currently, traditional energy sources hold an excessive share in the economy, while non-fossil energy has yet to dominate. With the goal of achieving carbon neutrality by 2060 in mind, China’s energy transition faces significant challenges.

Recent policies released by the government include the notice on deepening the market-oriented reform of new energy pricing (referred to as Document No. 136), which is expected to have a profound impact on future new energy investments and industry development. What are the implications of Document No. 136? Are there any shortcomings in the power market mechanisms? Launched on February 9, 2025, Document No. 136 primarily aims to facilitate the full participation of new energy sources in power market transactions and optimize resource allocation through market mechanisms. The integration of renewable energy into the grid has shifted from a “guaranteed quantity and price” model to a system where neither quantity nor price is guaranteed, leaving everything to market forces to determine.

Projects that are connected to the grid before May 1, 2025, or other existing projects before June 1, 2025, will still be allowed to benefit from guaranteed pricing or subsidy policies under the “old projects, old rules” approach, referred to as “mechanism pricing,” to prevent sudden drops in revenue. However, all existing projects must fully participate in the market, ensuring that their profits are maintained through a “less refund, more supplement” method. A pressing concern is whether the market access for all new energy sources will be fully opened and whether market participants can compete equally. Are the electricity market mechanisms sound? Does transaction scheduling cover all aspects?

Transaction parties must register and participate in trading at the electricity trading centers of each province (including provincial municipalities and autonomous regions) according to relevant regulations. For individuals and small-scale generators or users, aggregator companies and electricity sales companies may act on their behalf. All provincial electricity trading centers are controlled or held by grid companies, facilitating seamless connections for scheduling and reducing disputes. However, how will potential off-market transactions be supported? Are the capacities of transmission and distribution channels transparent? Have all channels been opened to ensure the execution of transactions? Are transmission and distribution costs independently accounted for?

Under the premise of transparency in transmission and distribution channels and capacities, a significant portion of electricity delivery can be accomplished solely within distribution networks, allowing for costs to be charged based on the widely accepted “usage principle” internationally. Currently, transmission and distribution costs are not separately accounted for in provinces, making it challenging to conduct feasibility analyses on upgrades, renovations, and investments in transmission and distribution networks, leading to frequent structural mismatches or delays.

Separating transmission and distribution, independently accounting for costs, and promoting relatively independent operations will help save costs, improve efficiency, enhance safety, and increase the scale and proportion of green electricity in the transmission and distribution networks.

How will the legal positioning of new models be defined? Recent policies have supported direct supply of green electricity, wall-to-wall electricity sales, source-grid-load-storage solutions, and virtual power plants. These so-called new models have been operational and mature in countries with developed electricity markets for many years, with clear legal positioning and regulated transmission fees calculated based on the “usage principle.” Currently, neither national-level documents nor provincial regulations provide explicit explanations regarding the legal positioning, operational mechanisms, and associated costs of these new models, making it difficult to define the profit models for various stakeholders. This is a major reason why these new models struggle to gain traction, with most remaining at the “pilot” stage.

Who Decides Peak and Off-Peak Pricing?

In countries with relatively advanced electricity markets, peak and off-peak pricing is determined by the market, with electricity stakeholders deciding transaction times, modes, and prices based on market changes. Regulatory bodies only intervene in cases of potential monopolies or disruptions. Currently, provincial regulatory agencies attempt to simulate the market by artificially designating multiple time periods each day, setting sales prices for each period, and determining fluctuations, with adjustments made quarterly, semi-annually, or annually. However, the electricity market is highly complex and changes every moment, making it impractical and unscientific to simulate “shadow prices.” The essence and core of a market mechanism is that prices are determined by the market, not by regulatory agencies or artificial manipulation. Of course, considering the realities in some areas, certain provinces have a monopoly in electricity supply controlled by one or two entities, which can easily exploit their advantageous positions to raise prices, harming consumer rights. In response, regulatory authorities typically either split these entities or rapidly cultivate a diversified market to establish a competitive landscape.

At present, the market mechanism still has flaws and significant issues. The hasty issuance of Document No. 136 hopes to leverage this as an opportunity for gradual improvement and the establishment of a sound electricity market. However, the outcomes may diverge significantly from the initial intentions of policymakers.

Will policy implementation lead to a Pareto improvement? Stakeholders are particularly concerned about who benefits and who suffers from the issuance of Document No. 136. Overall, can a Pareto improvement be achieved? Who are the disadvantaged stakeholders?

Investors in New Energy Power Plants

The investment enthusiasm of new energy power plants is a fundamental guarantee for green development and energy transition. Currently, the main investors in new energy plants are state-owned enterprises and publicly listed companies, with individual and other private enterprises comprising a small portion. After the issuance of Document No. 136, the transition from a “guaranteed quantity and price” to “neither guaranteed quantity nor price” has left profit calculation models without references, resulting in many contracted projects and those under development being unable to move forward. Many photovoltaic plants generate electricity mainly during periods designated as low or even extremely low demand by regulatory authorities, potentially leading to negative pricing. After June 1, a significant drop in new investment projects in photovoltaic facilities is expected. Following the cancellation of mandatory energy storage requirements, the profitability model for energy storage on the supply side remains uncertain; on the user side, energy storage profitability is also uncertain due to the unpredictable pricing by external regulatory authorities, leading to anticipated significant declines in new investments in energy storage. The impact on wind farms is comparatively minor due to the random nature of wind power generation across all demand periods. As long as average electricity prices remain relatively stable and do not drop significantly, the wind power profitability model can operate effectively. With limited options for profitable investment projects, investors face intense competition for projects, leading to increased development, intermediary, and associated costs. Nevertheless, according to the document’s stipulations, existing projects by investment enterprises will not be affected unless grid companies fail to make timely payments for the “less refund” portion. Overall, the lack of investment enthusiasm among new energy power plant investors will lead to significant declines in new investments, with photovoltaic and energy storage sectors facing the greatest negative impact. They are disadvantaged not only in the short term but also in the long term.

Upstream New Energy Manufacturing Enterprises

Given the expected significant decline in total investment by new energy power plant investors, demand for upstream new energy equipment will also decrease substantially, particularly in the photovoltaic and energy storage sectors. Currently, the photovoltaic and energy storage industries are facing severe overcapacity, with many manufacturers accelerating bankruptcy and closure. Faced with a harsh international environment and a sharp decline in domestic demand, the photovoltaic and energy storage manufacturing sectors are heading into an even colder cycle. It is evident that both the photovoltaic and energy storage manufacturing industries, along with their upstream equipment manufacturing enterprises, will suffer severe damage with no long-term benefits in sight.

Local Governments with Land Holdings

With the issuance of Document No. 136, the era of “land ownership supremacy” will come to an end. While wind power resources remain a valuable asset for local governments, the demand for land is limited, and the dilution of investor profits means that local governments’ attempts to sell land at high prices, engage in industrial exchanges, or make related donations will yield diminished returns. With significantly reduced demand for photovoltaic and energy storage, local governments will lose their advantageous “seller’s market” position and a substantial source of land revenue. Thus, compared to the “land ownership supremacy” era, local governments will also be among the disadvantaged, both in the short and medium to long term.

New Energy Project Development Enterprises

The industry often criticizes new energy development enterprises and individuals. As indispensable stakeholders in the new energy market, they transform various types of land, including barren areas, into sites for new energy generation, contributing significantly to the sector. Development enterprises invest considerable time and funds in the early stages of projects; however, if they fail to meet the grid connection deadlines of May 1 and June 1, projects that have not officially commenced may come to a halt, resulting in substantial losses for these enterprises. Additionally, as investment enterprises reduce their investment willingness, the business volume for development enterprises will sharply decline. Therefore, both the short-term and long-term interests of new energy project development enterprises will be adversely affected.

New Energy Construction and Engineering Enterprises

Due to the substantial decrease in the number and scale of investment projects by new energy power plant investors, the overall amounts for project contracting, design, construction, and supervision will also decline proportionally, affecting their short-term and long-term prospects.

The Pace of National Green Transition

With a significant reduction in available projects for investment in new energy power plants, the pace of the national green transition will also slow down significantly, delaying the timeline for achieving carbon neutrality targets.

Are There Beneficiaries?

In the power market, medium and small enterprise electricity users typically lack the capacity or necessity to register as buyers; they are more likely to entrust electricity procurement to sales companies. Due to their market influence and other advantages, medium and small enterprise users are likely to engage large state-owned electricity companies’ sales enterprises, making these large state-owned electricity companies the primary beneficiaries.

New Aggregators in the Electricity Market

Once all new energy sources enter the market, small and medium-sized electricity generating companies, especially distributed generation enterprises, which are numerous and dispersed, are likely to delegate electricity sales to new aggregators. Aggregators possess specialized talent and digital systems that can maximize the interests of small and medium generators, ultimately resulting in a balanced power market curve. If new aggregators allow grid companies and large state-owned electricity firms to participate, they will be the largest beneficiaries. Additionally, upstream companies providing software systems and operational support for new aggregators will also benefit.

Grid Companies and Users

Grid companies primarily derive their revenue from transmission and distribution services, with prices determined by national and local regulatory authorities. As overall electricity demand increases, along with the rising number of transactions, grid companies’ total revenues are expected to grow. Furthermore, as electricity consumption rises, the revenue from the operational dispatch services and trading centers controlled by grid companies will also increase, despite constituting a small percentage of their overall revenue. Additionally, revenue from auxiliary services provided by grids to upstream and downstream enterprises should also increase, allowing grid companies to benefit from multiple avenues.

As for electricity users, whether they benefit depends on the average costs of electricity expenditures. Although some periods may see low prices from generating companies after the full integration of new energy sources into the market, the addition of various fees may hinder effective transmission of benefits to users, preventing a reduction in average user electricity costs. It is likely that the average electricity price for users will rise, while residential electricity costs may remain stable. In summary, if grid companies can widely enter the electricity sales and aggregator markets, they will become the only beneficiaries. If residential electricity policies remain unchanged, the interests of residential users will not be affected; however, all other related stakeholders may suffer, facing significant short-term challenges and bleak long-term prospects.

Based on this analysis, it appears that policies may not achieve a Pareto improvement but rather exacerbate existing issues. In light of this analysis, we recommend that Document No. 136 be implemented in phases, potentially over a three-year period. During these three years, the guaranteed “quantity” could gradually decrease, transitioning to a “neither guaranteed quantity nor price” model post three years, thereby providing investors with a longer buffer period and allowing stakeholders time to build market adaptability. A forced, rapid implementation aimed at achieving immediate results is likely to lead to a scenario where “one party wins while many lose,” jeopardizing the realization of carbon neutrality targets and causing significant turbulence in related industries, ultimately backfiring. During these three years, it is crucial to address the deficiencies and issues within the electricity market mechanisms. If such deficiencies are not resolved in advance, the electricity market will inevitably become one that is artificially manipulated, unequal, and distorted.

Due to limited data and time constraints, we are unable to simulate and estimate the financial impact on various stakeholders, nor quantify the changes in social welfare, which may affect the credibility of this article. We appreciate your understanding regarding any shortcomings.