The National Development and Reform Commission's Document No. 136 marked the official start of integrating new energy sources into the full market, with the mechanism pricing serving as a transitional price-gap subsidy tool. It was once the final safety net for solar projects against volatile spot electricity prices. This safety net is now rapidly being withdrawn from the commercial and industrial sector.
According to incomplete statistics from Yicai, five provinces—Shandong, Henan, Guangxi, Jiangxi, and Anhui—have implemented policies to exclude new commercial and industrial distributed solar projects from the mechanism pricing coverage. Meanwhile, Ningxia and Hainan have tightened access for large-scale commercial and industrial solar bidding. Some executives from solar development companies noted that commercial and industrial distributed solar previously relied on policy guarantees for stable income expectations. With new projects losing this support, investment returns will become more volatile, leading to greater caution among investors and potentially accelerating industry consolidation. However, industry experts believe this phase-out of mechanism pricing is a necessary step for new energy projects to align with real market pricing, forcing the industry to move away from a focus on sheer capacity expansion. Instead, it will drive a shift toward refined operations centered on load matching, energy storage integration, and professional power trading. Companies that first establish market-based evaluation and trading systems will seize the initiative in this transformation.
Removing the Safety Net
Mechanism pricing, officially known as the new energy sustainable development price settlement mechanism, is a transitional policy under the "Notice on Deepening Market-Oriented Reforms of New Energy On-Grid Tariffs to Promote High-Quality Development" (Document No. 136). It establishes a base price through market bidding. Since solar power generation peaks at noon, it often faces low or negative spot prices. When the market average price falls below the mechanism price, grid companies compensate the difference monthly, stabilizing project income expectations. Once a solar project is excluded from this mechanism, its on-grid electricity is fully subject to market forces, with no policy guarantees for returns.
Over the past year, multiple provinces have introduced detailed rules to remove the mechanism pricing safety net for commercial and industrial distributed solar projects, setting varying transition periods based on local absorption capacity. Shandong, the largest province for distributed solar, has been the fastest and most aggressive in reform. In August 2025, it issued bidding implementation rules stating that general commercial and industrial solar projects commissioned after June 18 of that year, and large-scale commercial and industrial distributed solar projects commissioned after June 1, would not be included in the mechanism pricing for electricity beyond self-consumption. In April of this year, Shandong updated its regulations, explicitly excluding general commercial and industrial solar, large-scale commercial and industrial distributed solar, and non-residential household solar projects commissioned after June 1 from the mechanism pricing coverage.
Henan and Guangxi followed suit, both stipulating that general commercial and industrial distributed solar and large-scale commercial and industrial distributed solar projects commissioned after June 2025 would not be included in the mechanism pricing. Jiangxi and Anhui, however, provided longer buffers for the market. In the second half of this year, both provinces revised their bidding rules, specifying that from January 1, 2027, commercial and industrial distributed solar projects using the "self-consumption with surplus electricity fed into the grid" model, as well as general and large-scale commercial and industrial distributed solar projects, would lose their mechanism pricing support. Additionally, Ningxia and Hainan tightened bidding access for large-scale commercial and industrial solar projects, explicitly excluding large-scale commercial and industrial distributed solar projects and those with full self-consumption from the mechanism pricing coverage.
Industry experts view the removal of mechanism pricing for commercial and industrial distributed solar as an inevitable trend. Discussing the policy's proactive "weaning" process, Lin Boqiang, director of the China Institute for Energy Policy at Xiamen University, told Yicai that this is a necessary choice driven by multiple practical constraints. Among these, grid capacity and absorption challenges are urgent issues for local authorities. In Shandong, for example, as of June 2025, the province's cumulative solar photovoltaic capacity was approximately 91 GW, with distributed solar exceeding 60 GW, accounting for about two-thirds. In 2024, 53 of the province's 136 counties and districts were classified as "restricted" for low-voltage distribution network connection warnings. As absorption "red zones" expand, eliminating mechanism pricing becomes a tool to use market signals to push developers to improve local absorption capacity, alleviating grid congestion. Fiscal constraints from society-wide electricity cost sharing also drive the tightening of mechanism pricing coverage. Document No. 136 stipulates that gap electricity costs for new energy are included in local system operation costs and shared by all commercial and industrial users. According to data from electricity sales company Hongzhi Data, Shandong's new energy gap settlement costs rose from 0.0576 yuan per kWh in January to 0.0998 yuan per kWh in April, an increase of over 70%. Therefore, excluding fast-growing, large-scale commercial and industrial distributed solar projects is a direct way to control this cost pass-through. The industry believes the policy's deeper aim is to correct the distorted development logic of prioritizing grid connection and capacity expansion, steering distributed solar back toward its core focus on local absorption. "Blind expansion only wastes resources," Lin Boqiang said. While the withdrawal of mechanism pricing removes the safety net for distributed solar, in the long term, it will accelerate industry consolidation and push distributed solar projects toward refined operations, enhanced trading capabilities, and genuine returns.
Securing Returns
The industry predicts that, in the future, commercial and industrial distributed solar will enter the market without guaranteed tariffs as a norm. To hedge against electricity price volatility, the industry must move beyond traditional development mindsets and build multi-layered revenue protection pathways. Self-consumed electricity forms a stable revenue base for market-oriented projects, and load matching is becoming a core criterion for project approval. Yang Yue, a project manager at a Guangxi-based solar construction general contractor, told Yicai that although the province has eliminated mechanism pricing for commercial and industrial distributed solar, his company's project returns remain stable. This is due to early-stage planning that matched installed capacity to the factory's load profile, maximizing internal consumption, and avoiding issues like long payment cycles or bad debts.
New collaborative models are also emerging to adapt to this environment. Guangdong-based distributed solar company Qingtian Technology has introduced an innovative "pay-per-generation for three and a half years" model. This requires no upfront investment from the owner; instead, the installed capacity is matched to the actual electricity load, and the owner pays the investment cost in installments. According to Vice President Li Dingjie, this new model makes the 3-4 year investment return period transparent, allowing owners to independently assess returns and cooperate rationally, effectively reducing contract disputes from price volatility and rebalancing mutual interests.
However, relying solely on self-consumption is insufficient to counter the impact of low midday electricity prices. Energy storage is evolving from a supporting feature to a standard requirement. Lin Boqiang noted that integrated energy storage is a core tool for commercial and industrial distributed solar to handle market fluctuations. As the energy storage industry scales up and equipment costs decline, solar-plus-storage projects will unlock new revenue streams. Currently, energy storage yields benefits from peak-valley price arbitrage, capacity compensation, and ancillary services. A manager at a Shandong-based state-owned power company told Yicai that their 100 MW distributed solar-plus-storage project in Dezhou, equipped with a 220 kV step-up substation connected to the Shandong grid, uses county-level distributed storage technology and cloud-based storage terminal siting methods. This addresses issues like overvoltage and reverse overload in transformer areas, enabling observable, measurable, controllable, and adjustable distributed solar and storage. In the first half of this year, the project generated over 19 million yuan in total revenue from peak-valley arbitrage, capacity compensation, and frequency regulation.
Furthermore, building dynamic power trading capabilities is key to differentiating returns. Yang Yue suggested that large-scale power generation projects could establish in-house professional trading teams to continuously track day-ahead and intraday spot market prices. Small and medium-sized distributed stations could access qualified aggregators or virtual power plant platforms to indirectly participate in the wholesale power market or demand-side response for additional revenue. Notably, corporate talent recruitment is also shifting. According to Yicai, while power trading roles were previously focused on electrical engineering graduates, recent years have seen a growing demand for expertise in finance, computer science, and big data. Many companies are building data analysis teams to use models for forecasting price trends and formulating optimal trading strategies.
Comments