hina’s National Development and Reform Commission and National Energy Agency jointly published a “Notice on Deepening Market-Based Reform of Renewable Energy On-Grid Tariffs to Promote High-Quality Renewable Energy Development.” Hereafter referred to as Document 136, this policy drastically changed the character of China’s power sector, advancing market liberalization reforms in one of the nation’s most stubbornly top-down sectors.
Document 136 is significant because it requires that by the end of 2025, provincial governments push all wind and solar electricity projects to sell their electricity production through the market. This is a huge change from today, when nearly 50 percent of all renewable energy is sold via guaranteed offtake agreements at predetermined volumes and prices to the grid, regardless of market dynamics like supply and demand.
According to Cosimo Ries, Renewable Energy Analyst at Trivium China, “this marks the end of an era.”
Guaranteed Offtake – The Bygone Era
To understand the impact of Document 136, it’s important to understand the problem it is trying to fix.
In the decade since China embarked on its latest round of power sector reforms, regulators have been walking a fine line between trying to liberalize the nation’s power sector while simultaneously decarbonizing it. Until recently, this has meant gradually exposing fossil fuel generation to market volatility while supporting renewables with subsidies – first with a Feed in Tariff (FiT) and then with a guaranteed offtaking mechanism. These efforts to encourage renewable development were so successful that today, China has the largest fleet of renewable power in the world.
