Wednesday, February 19, 2025
Around China’s 元宵节 (Lantern Festival), I came across a news story that most people might overlook and that could make a big splash: by June 2025, China will replace its feed-in tariff (FIT) system with a fully market-driven renewable energy pricing model. This shift will move wind and solar projects to competitive bidding and market-based transactions.
The current Feed-in Tariff (FIT) system is a government policy that guarantees a fixed price for electricity generated by renewable energy sources like wind and solar. This incentive encourages energy producers to invest in renewable energy projects by ensuring a stable return.
However, by June 2025, China plans to phase out this system. Under the new policy, prices will be determined by market conditions, such as supply and demand. Wind and solar projects will be subject to competitive bidding or market transactions to decide pricing.
Key Aspects of the New Policy:
1. Full Market Pricing: Renewable energy will primarily be bought and sold through market transactions, with prices fluctuating according to demand and supply, similar to other commodities.
2. Sustainable Price Settlement: A new system will ensure long-term price stability, with mechanisms in place to prevent sudden price fluctuations, helping energy producers and investors plan more effectively.
3. Differentiated Treatment for Existing and New Projects: Existing renewable energy projects will maintain current pricing under the FIT system, while new projects will adopt the new market-based model.
Why This Matters:
(1) For China’s Renewable Energy Industry: Moving from FIT to a market-based pricing system introduces price competition. This could lower energy costs over time as companies strive to offer cheaper and more efficient renewable energy solutions.
As the market becomes more competitive, there will be greater pressure on innovation. Companies will need to innovate and improve efficiency to stay competitive in a market with fluctuating prices. This shift could accelerate the development of cleaner, more efficient technologies.
However, for developers and investors, the move to market-based pricing introduces uncertainty about long-term price stability, which could discourage some from investing in new projects. The lack of a guaranteed price means the financial risks are higher.
(2) For China’s Energy Transition Goals: This shift aligns with China’s commitment to reducing carbon emissions and transitioning to renewable energy. By encouraging market-driven pricing, the country may accelerate the growth of its renewable energy sector—especially solar and wind power. The new pricing model could also boost long-term investment in energy infrastructure and technologies.
However, while lower prices could make renewable energy more accessible, there’s a risk of price volatility if demand fluctuates or if too many projects come online simultaneously. This could create instability in energy pricing, potentially affecting consumers and businesses.
(3) For the Global Renewable Energy Market: As the world’s largest producer and consumer of renewable energy, China’s pricing shift could cause significant effects on global energy markets. This may influence energy pricing worldwide, especially in countries that rely on China for renewable energy technologies or trade.
Finally, this shift towards market-driven renewable energy pricing could not only accelerate China’s energy transition but also set a precedent for other nations. As the world’s largest renewable energy producer, China’s move could inspire a global push for more competitive, efficient, and sustainable energy markets, driving innovation and fostering international collaboration on climate goals.