On January 30, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) issued a notice on improving the capacity tariff mechanism for the generation side.
The notice mentioned improving the capacity tariff mechanism for coal power and natural gas power generation. Local authorities are required to increase the proportion of fixed costs recovered through capacity tariffs for coal power units to no less than 50%, based on the requirements of the "Notice on Establishing a Capacity Tariff Mechanism for Coal Power." This proportion can be further raised according to local market development and coal power utilization hours.
The notice also highlighted the improvement of electricity market trading and pricing mechanisms. After enhancing the coal power capacity tariff mechanism, local authorities can appropriately adjust the lower limit for medium- to long-term market transaction prices of coal power within the province, considering factors such as electricity market supply and demand and the variable costs of all participating units. Requirements for the proportion of medium- to long-term coal power contracts can be relaxed appropriately while ensuring power and energy balance. Both supply and demand sides are encouraged to incorporate flexible pricing mechanisms in medium- to long-term contracts that adjust to market supply and demand and generation costs. When signing medium- to long-term contracts in the provincial market, local authorities must not mandate fixed prices; instead, they may require that a certain proportion of electricity in annual medium- to long-term contracts adopt flexible prices reflecting real-time supply and demand, depending on the electricity supply-demand situation and market structure.
Additionally, the notice introduced the establishment of a capacity tariff mechanism for independent grid-side new energy storage. Grid-side independent new energy storage stations that serve the safe operation of the power system and do not participate in distribution-side energy storage may be granted capacity tariffs. The capacity tariff level will be based on the local coal power capacity tariff standard, adjusted proportionally according to peak capacity (the ratio is calculated as the full-power continuous discharge duration divided by the annual maximum net load peak duration, capped at 1), and determined by considering factors such as the progress of electricity market development and power system requirements. Grid-side independent new energy storage stations will be managed under a list system, with specific management requirements to be clarified separately by the NEA based on power supply-demand analysis and supply guarantee measures. The specific project list will be formulated by provincial energy authorities in conjunction with pricing departments.
The original text is as follows: National Development and Reform Commission, National Energy Administration Notice on Improving the Capacity Tariff Mechanism for the Generation Side [2026] No. 114.
To all provincial-level development and reform commissions, energy administrations, industry and information technology departments, urban management committees, NEA dispatched agencies, State Grid Corporation, China Southern Power Grid, Inner Mongolia Power (Group) Co., Ltd., China National Nuclear Corporation, China Huaneng Group, China Datang Corporation, China Huadian Corporation, State Power Investment Corporation, China Three Gorges Corporation, China Energy Investment Corporation, China Development Bank Capital Co., Ltd., China Resources (Holdings) Co., Ltd., and China General Nuclear Power Group: In order to implement the decisions and deployments of the Central Committee and the State Council on promoting price reforms in the energy sector, accelerating the construction of a new energy system, guiding the orderly construction of adjustable power sources, ensuring the safe and stable operation of the power system, and supporting green economic and social development, the following notice is issued regarding the improvement of the capacity tariff mechanism for the generation side.
I. Overall Approach Adapt to the needs of building a new power system and electricity market system, better coordinate the safe and stable supply of electricity, green and low-carbon energy transformation, and efficient resource allocation, classify and improve the capacity tariff mechanisms for coal power, natural gas power, pumped storage, and new energy storage, and optimize the electricity market mechanism; after the continuous operation of the electricity spot market, establish a reliable capacity compensation mechanism for the generation side in an orderly manner, compensating the reliable capacity of units according to unified principles based on peak capacity, fairly reflecting the contribution of different units to the power system's peak shaving.
II. Classify and Improve the Capacity Tariff Mechanism (1) Improve the capacity tariff mechanism for coal power and natural gas power generation. Local authorities are required to increase the proportion of fixed costs recovered through capacity tariffs for coal power units to no less than 50%, based on the requirements of the "Notice on Establishing a Capacity Tariff Mechanism for Coal Power" ([2023] No. 1501). This proportion can be further raised according to local market development and coal power utilization hours. Provincial pricing authorities may establish a capacity tariff mechanism for natural gas power generation, with the capacity tariff determined by recovering a certain proportion of fixed costs for natural gas power units.
(2) Improve the capacity tariff mechanism for pumped storage. For power stations that started construction (obtained water intake, temporary land use, and environmental impact assessment approval documents) before the issuance of the "Opinions on Further Improving the Price Formation Mechanism for Pumped Storage" ([2021] No. 633, referred to as Document 633), the capacity tariff will continue to be set by the government, specifically determined or reviewed by provincial pricing authorities according to the methods in Document 633. After the operating period expires, repricing will be based on the principle of covering necessary technological transformation expenses and operation and maintenance costs. In line with the spirit of Document 633, which emphasizes gradually recovering costs and obtaining profits mainly through market participation, for power stations that started construction after the issuance of Document 633, provincial pricing authorities will, every 3-5 years, set a unified capacity tariff for newly started power stations in the same period within the provincial grid based on the principle of covering average costs during the operating period and according to the cost parameter rules specified in Document 633 (with appropriate reductions for full-power generation durations of less than 6 hours). The execution period can be determined by considering factors such as electricity market development, power system requirements, and the sustainable development of the power stations. Meanwhile, pumped storage power stations will independently participate in energy and ancillary service markets, with market proceeds shared by the stations according to a proportion determined by provincial pricing authorities; the remaining portion will offset system operation costs and be shared by users.
(3) Establish a capacity tariff mechanism for independent grid-side new energy storage. Grid-side independent new energy storage stations that serve the safe operation of the power system and do not participate in distribution-side energy storage may be granted capacity tariffs. The capacity tariff level will be based on the local coal power capacity tariff standard, adjusted proportionally according to peak capacity (the ratio is calculated as the full-power continuous discharge duration divided by the annual maximum net load peak duration, capped at 1), and determined by considering factors such as the progress of electricity market development and power system requirements. Grid-side independent new energy storage stations will be managed under a list system, with specific management requirements to be clarified separately by the NEA based on power supply-demand analysis and supply guarantee measures. The specific project list will be formulated by provincial energy authorities in conjunction with pricing departments.
III. Orderly Establish a Reliable Capacity Compensation Mechanism for the Generation Side (1) Overall requirements for the reliable capacity compensation mechanism. Reliable capacity refers to the capacity that units can stably and continuously supply during the system's peak periods throughout the year. After the continuous operation of the electricity spot market, provincial pricing authorities, in conjunction with relevant departments, will establish a reliable capacity compensation mechanism in a timely manner, compensating the reliable capacity of units according to unified principles. The compensation standard will be based on covering the fixed costs that marginal units in the market cannot recover through energy and ancillary service markets, reasonably determined by considering factors such as electricity supply-demand relations, user affordability, and the progress of electricity market development, and adjusted as appropriate. Regions with a high proportion of new energy installed capacity and large reliable capacity demand should accelerate the establishment of a reliable capacity compensation mechanism. Under national guidance, regions with suitable conditions may, based on electricity market development, form capacity tariffs through capacity markets or other methods in a timely manner.
(2) Reasonably determine the compensation scope. The compensation scope of the reliable capacity compensation mechanism may include coal power, gas power, and qualified grid-side independent new energy storage that voluntarily participate in the local market, and gradually extend to other units with reliable capacity such as pumped storage as electricity market development and electricity price marketization reforms progress; no duplicate compensation will be provided for capacities that receive other guarantees. Government-priced units will not be compensated.
(3) Coordinate with capacity tariff policies. After the establishment of the reliable capacity compensation mechanism, relevant units such as coal power, gas power, and grid-side independent new energy storage will no longer implement the original capacity tariff. Provincial pricing authorities may, on the basis of a relatively sound market system, uniformly implement the reliable capacity compensation mechanism for pumped storage power stations that started construction after the issuance of this notice and participate in energy and ancillary service markets, with all market proceeds obtained by the stations. Pumped storage power stations that started construction after the issuance of Document 633 are encouraged to voluntarily choose to implement the reliable capacity compensation mechanism and participate in the electricity market.
IV. Improve Relevant Supporting Policies (1) Improve electricity market trading and pricing mechanisms. After enhancing the coal power capacity tariff mechanism, local authorities can appropriately adjust the lower limit for medium- to long-term market transaction prices of coal power within the province, considering factors such as electricity market supply and demand and the variable costs of all participating units. Requirements for the proportion of medium- to long-term coal power contracts can be relaxed appropriately while ensuring power and energy balance. Both supply and demand sides are encouraged to incorporate flexible pricing mechanisms in medium- to long-term contracts that adjust to market supply and demand and generation costs. When signing medium- to long-term contracts in the provincial market, local authorities must not mandate fixed prices; instead, they may require that a certain proportion of electricity in annual medium- to long-term contracts adopt flexible prices reflecting real-time supply and demand, depending on the electricity supply-demand situation and market structure.
(2) Improve electricity billing and settlement policies. The capacity tariffs and reliable capacity compensation costs for the aforementioned adjustable power sources will be included in local system operation costs. In regions with continuous spot market operation, the pumping/generation prices for pumped storage and charging/discharging prices for grid-side independent new energy storage will be executed according to market rules or real-time spot prices; in regions without continuous spot market operation, the pumping (charging) price will follow the grid's procurement price for commercial and industrial users, and the generation (discharging) price formation method will be determined by provincial pricing authorities considering factors such as charging and discharging losses of various technical routes. Pumped storage and grid-side independent new energy storage will be treated as users during pumping (charging), paying for grid connection line loss costs and system operation costs, temporarily implementing transmission and distribution tariffs under a single energy rate system; generation (discharging) electricity will correspondingly reduce transmission and distribution fees. Market proceeds shared by pumped storage power stations according to the proportion will be settled monthly and cleared annually.
(3) Clarify the allocation method for capacity tariffs of regionally shared pumped storage. The allocation proportion of capacity tariffs for regionally shared pumped storage power stations will be determined based on the capacity allocation proportion, with optimization through market mechanisms encouraged. Among them, if the capacity allocation proportion is already clear, it will be implemented according to the specified proportion; if the capacity allocation proportion is not yet clear but the project has been approved, the local provincial energy and pricing authorities will organize the energy and pricing authorities of provinces participating in the allocation to negotiate and determine it; for newly approved projects, it will be clarified in the project approval document according to the above principles after negotiation.
V. Organize Implementation Effectively (1) Strengthen work coordination. Provincial pricing authorities should, in conjunction with relevant departments, improve capacity tariff policies and establish a reliable capacity compensation mechanism in a timely manner, carefully organize implementation, provide policy interpretation, guide enterprises to strengthen management, and promote healthy industry development. Provincial energy authorities should, together with pricing departments, scientifically calculate the reliable capacity requirements of the local power system. All regions should accelerate the establishment of a sound electricity market system, enabling fair participation of adjustable power sources such as pumped storage and new energy storage in various markets including energy and ancillary services, better reflecting their regulatory value, and promoting the full utilization of their regulatory role. Grid companies should cooperate in data calculation, sign dispatch operation agreements and relevant contracts with power stations, handle market proceeds calculation and settlement, and report relevant situations annually to provincial pricing authorities and the NDRC (Price Department). The state will strengthen guidance to various regions to promote smooth implementation.
(2) Establish an electricity price affordability assessment system. Provincial pricing authorities should, together with energy authorities, establish a user economic affordability assessment system, using the assessment results as an important basis for determining reliable capacity compensation standards, formulating power system regulation capacity and new energy and new energy storage development plans and schemes, and approving projects such as pumped storage. Regions with ample reliable capacity in the power system or weak user economic affordability should strictly control the addition of new adjustable power source projects; relevant projects that have not undergone user economic affordability assessment shall not be included in planning and approval, and shall not receive capacity tariffs or reliable capacity compensation.
(3) Strengthen capacity tariff assessment. Improve the capacity tariff assessment methods in conjunction with management requirements for various types of units, conduct assessments by category, guide units to enhance production operation levels, and improve peak output capacity. After the establishment of the reliable capacity compensation mechanism, further strengthen assessments strictly, fully leveraging the guiding role of capacity tariffs. For units that fail to meet assessment requirements, capacity tariffs or reliable capacity compensation costs should be deducted, with specifics to be clarified by provincial pricing authorities in conjunction with relevant parties.
National Development and Reform Commission, National Energy Administration, January 27, 2026.
This article is selected from the National Development and Reform Commission.
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