China Scraps Fixed Time-of-Use Power Pricing in 9 Provinces
Nine Chinese provinces and municipalities have abolished fixed time-of-use (TOU) electricity pricing, marking a landmark shift from government-determined rates to market-driven pricing in the world’s largest power market. The reform, effective March 1, 2026, transitions commercial and industrial users to dynamic pricing determined by electricity spot markets, while residential electricity rates remain unchanged for now.
A 40-Year-Old System Gives Way to Markets
China’s fixed TOU pricing mechanism has been in place for over four decades. Under the old system, government authorities divided each day into fixed peak, flat, and valley periods and set corresponding price ratios to encourage off-peak consumption and ensure grid stability. But that model has become increasingly incompatible with the country’s rapidly evolving power grid.
“With the advancement of the ‘dual carbon’ strategy, the installed capacity of renewable energy such as wind and solar has grown rapidly, reshaping the grid supply-demand curve,” Han Fang, deputy director of the Planning and Development Department at the China Electricity Council, told Xinhua News. “The original fixed time-of-use pricing model, with its fixed time period division, can no longer flexibly adapt to the characteristics of a new power system with a high proportion of new energy.”
The reform is grounded in Document No. 1656 (2025), jointly issued by the National Development and Reform Commission and the National Energy Administration on December 17, 2025. The document mandates that for entities directly participating in market transactions, TOU pricing levels and periods shall no longer be artificially prescribed.
The Price Distortion Problem
Under the old system, a critical distortion emerged: during midday hours when solar generation peaks, electricity supply is abundant and should theoretically be cheaper. Yet the fixed TOU system still classified midday as a peak period with higher prices. This meant cheap electricity was priced high and expensive electricity was priced low — the opposite of what market signals should convey.
The maturation of provincial-level electricity spot markets, which achieved basic full coverage across China by late 2025, provided the technical foundation for the transition. These spot markets generate real-time prices through competitive bidding, accurately reflecting current supply-demand conditions.
Two Implementation Models
The nine confirmed regions — Guizhou, Hebei (Southern Grid), Hubei, Shaanxi, Jilin, Yunnan, Chongqing, Liaoning, and Henan — have adopted one of two approaches, according to the National Energy Administration.
Under the “full coverage” model, adopted by Hubei and Shaanxi, all retail users served by electricity sales companies are included, with terminal TOU prices formed through transmission of market transaction prices. Shaanxi’s power trading center noted that the lowest electricity prices will mainly appear during midday when solar power is abundant.
The “gradual rollout” model, adopted by Guangdong, retains some administrative TOU pricing as a safety net while introducing diversified electricity packages and transition periods. Han Fang noted that “full coverage is the direction of power market reform” over the long term.
Energy Storage Industry Faces Short-Term Pain
The reform has delivered a significant blow to the energy storage industry, which previously relied on fixed peak-valley spreads for its arbitrage business model. “After the policy was implemented, it indeed had a significant impact on the revenue of commercial and industrial energy storage,” Zhang Jianing, senior policy research manager at the Zhongguancun Energy Storage Industry Technology Alliance, told Xinhua. “Revenue at some provincial stations dropped by about 50%.”
However, industry insiders see long-term opportunity. A Guangdong-based energy storage operator executive told First Financial that “the policy adjustment will bring short-term industry adjustment pains, but in the long run, the market-oriented pricing mechanism will activate the vitality of the entire industry chain.”
What It Means for Consumers
For ordinary households, the immediate impact is minimal. Residential electricity remains under government-regulated catalog pricing with existing peak-valley rates. The reform targets commercial and industrial users who directly participate in electricity market transactions.
As consumer-focused analysis has clarified, residents’ tiered pricing and peak-valley policies remain unchanged. However, indirect effects may emerge over time. If businesses optimize their electricity costs by shifting consumption to low-price periods, those savings could potentially flow through to consumer prices. Conversely, if costs rise, some pass-through is possible — though government price caps and long-term contracts provide buffers.
A Broader Market Transformation
This reform is part of China’s comprehensive electricity market liberalization, which includes building a unified national electricity market, expanding spot market trading, developing ancillary service markets, and establishing capacity compensation mechanisms.
Han Fang emphasized that canceling fixed TOU pricing does not mean the government completely withdraws from electricity pricing. Authorities still set pricing for grid-procured users (mainly small and medium commercial users not directly in the market), establish market trading rules and price limits, supervise market fairness, and ensure residential electricity supply and safety.
Looking Ahead
Two additional provinces — Jiangsu and Shanxi — have policies under public consultation, and analysts expect more regions to follow. For the energy storage industry, the shift demands evolution from a “spread dependency” model to multi-market, multi-scenario revenue strategies involving AI-based energy management and participation in ancillary service markets.
In the long term, the reform is expected to create more accurate price signals that reflect real-time supply and demand, particularly as renewable energy’s share of the grid continues to grow. For consumers, the ultimate promise is a more efficient power system that delivers cleaner, more affordable electricity.