Cutting Subsidies, Boosting Consumption
China takes key steps to make its renewable power market more market-driven
By Gracie Sun
August 18, 2025
In July 2025
China’s National Development and Reform Commission (NDRC) issued its annual directive setting provincial renewable energy consumption targets for the year. Since late 2018, China has been building a provincial-level “green electricity quota” system, requiring provinces to consume a certain share of renewable energy. But this year’s targets stand out because they connect directly to another landmark policy announced earlier in February—the introduction of a “benchmark market price” (机制电价) for renewable electricity.
Together, these two policies form a coordinated system:
the quotas determine how much renewable energy each province must consume, and the benchmark price governs how that power is traded in the market. Beneath this is a bigger shift in China’s energy governance.
After years of heavy subsidies to build capacity at record speed, the government is phasing out direct financial support and letting market mechanisms play a larger role. The emphasis is moving away from adding capacity at any cost toward balancing new supply with actual demand and grid efficiency.
Wuhan, Hubei, China (Unsplash, Seele An)
over the past decade
China’s renewable energy sector has grown at breakneck speed.
Water photovoltaic power in China (Unsplash, tian dayong)
From 2013 to 2023, installed wind and solar capacity increased tenfold. Today, clean energy accounts for 58.2 percent of the country’s total installed power generation capacity. This expansion has been fueled not just by policy, but by dramatic cost reductions—between 2010 and 2022, the price of solar power in China fell 88 percent, from 2.75 CNY/kWh to 0.34 CNY/kWh, making it consistently cheaper than coal-fired power. Generous subsidies further encouraged large-scale installation.
Rapid build out has created challenges. Capacity expansion has often outpaced both demand and the infrastructure needed to connect projects to the grid.
But the rapid buildout has created challenges. Capacity expansion has often outpaced both demand and the infrastructure needed to connect projects to the grid. This has led to curtailment—where renewable power is generated but not used due to insufficient grid capacity and regional mismatch of supply and demand. In early 2025, wind and solar generation grew 18.5% year-on-year, but curtailment rates also rose by 1.2 percentage points, showing that overcapacity and imbalances remain.
New Rules Target Big Power Users
The data center of CNPC in Changping district. (Wikimedia, Charlie fong)
The updated July 2025 consumption quotas aim to address these challenges in new ways. For the first time, the NDRC is extending accountability beyond provincial governments to include major energy-intensive industries. While sectors such as electrolytic aluminum have already been included to meet renewable consumption requirements, cement, steel, polysilicon, and large data centers are newly added this year and are now subject to renewable consumption monitoring. This move is designed to push these industries—some of the largest consumers of electricity in China—to source more of their power from renewable sources.
For the first time, the NDRC is extending accountability beyond provincial governments to include major energy-intensive industries—a move designed to push these industries to source more of their power from renewable sources.
The financial implications are significant.
Analysts estimate that the expanded scope could increase annual electricity costs for certain large companies by 7.6–40 million yuan (about 1.1–5.6 million USD). These added costs will likely push companies to weigh the expense of buying green electricity and renewable energy certificates against the potential benefits of investing in energy efficiency upgrades or cleaner technology.
Quotas Build Urgency. But Do They Solve the Issue?
While quotas create pressure to consume renewable energy, they don’t by themselves ensure that the market operates efficiently. That’s where the benchmark market price policy comes in.
Announced in February 2025 under NDRC Document No. 136, the policy requires new renewable projects connected to the grid after June 1, 2025, to participate in market trading, whereas the existing projects continue to be “protected” under the old system. Under this transitional system, if the market price for renewable electricity is lower than the set benchmark, developers receive a subsidy to make up the difference; if the price is higher, the extra amount is deducted.
The goal is to gradually move away from a system where government subsidies drive investment, toward one where prices are set by supply and demand. This represents a step toward integrating renewable electricity fully into the broader power market—something that has proven challenging in China’s heavily regulated power sector.
The goal is to gradually move away from a system where government subsidies drive investment, toward one where prices are set by supply and demand.
The announcement of the benchmark price policy triggered a rush in the industry. Many developers fast-tracked projects to connect before the June 1 deadline and lock in the older, more favorable subsidy arrangements. The surge peaked in May 2025, when China added 93 GW of new solar capacity in a single month—a year-on-year increase of 388 percent—accounting for nearly half of the 198 GW installed between January and May.
After June 1, new installations fell sharply.
The market also became more volatile, with returns on investment more likely to decline in the face of more competitive pricing. Regional policy differences began to emerge as well. Western provinces, rich in renewable resources but facing budget constraints, scaled back subsidies significantly. Eastern coastal provinces, where demand is stronger and land is more limited, retained a reasonable size of subsidies to encourage moderate capacity growth.
Closing the Loop
These differences point to a future where China’s renewable market is more fragmented, shaped by local conditions and policy priorities. While this may create short-term uncertainty, NDRC officials have said that China’s falling development costs and the rapid growth of regional power markets have created the conditions for full market participation by renewables.
The quotas set minimum renewable usage requirements to curb unchecked capacity growth, while the benchmark price injects proportional market competition into how that capacity is traded and valued.
Taken together, the consumption quotas and the benchmark market price create a closed policy loop. The quotas set minimum renewable usage requirements to curb unchecked capacity growth, while the benchmark price injects proportional market competition into how that capacity is traded and valued. The combination forces renewable energy companies to rethink their strategies. Instead of relying on subsidies, they will need to focus on cost control, marketing, price-setting, and developing new capabilities—such as energy storage, green certificate trading, and cross-provincial power transactions.
Despite the country’s challenging, slow, and wavering power reform path, this action marks a significant step in the marketization of China’s renewable energy sector.
Successfully aligning the roles of grid operators, provincial governments, and the broader supply chain—and ensuring that well-intentioned policy translates into tangible results—remains one of Beijing’s biggest challenges. If it can get the balance right, these reforms could lay the foundation for a more competitive, efficient, and sustainable power system in the years ahead.
Gracie Sun is Basilinna Chair of Asia Pacific at Basilinna. She also serves as Managing Director of the Green Finance Center and Senior Advisor of the Paulson Institute.