China Takes Major Step Forward in Building Unified National Electricity Market
The newly issued "Basic Rules for Electricity Market Operation" marks a significant advancement in establishing a nationwide unified electricity market. This regulation serves as the cornerstone for creating an efficient, standardized, fair, and fully open electricity market system.
The rules represent a comprehensive update to the 2005 "Basic Rules for Electricity Market Operation" (Order No. 10) issued by the former State Electricity Regulatory Commission. Since the launch of the new round of power sector reforms in 2015, China’s electricity market has expanded rapidly, with market-based transactions reaching 5.67 trillion kWh in 2023, accounting for 61.4% of total electricity consumption—a dramatic increase from less than 17% in 2016. However, challenges such as inconsistent regional rules, local protectionism, and inter-provincial barriers have become increasingly apparent.
As the core document (“1”) in the “1+N” regulatory framework for the national electricity market, the new rules formally recognize emerging market entities including energy storage operators, virtual power plants, and load aggregators. Professor Lin Boqiang from Xiamen University notes these players have already been participating in market operations, and the rules will provide institutional support for their development. The regulation also improves mechanisms for ancillary services and capacity markets to accommodate the growing share of renewable energy.
The rules allow market participants to engage in electricity trading either through power exchange institutions or bilateral negotiations, while explicitly prohibiting anti-competitive practices like price collusion and market manipulation. This builds on previous reforms allowing independent energy storage and virtual power plants to participate in spot markets. Officials indicate these mechanisms will better incentivize flexible resources to support grid stability.
A National Energy Administration spokesperson emphasized the rules are designed to support China’s energy transition, where renewables are becoming the main energy source while fossil fuels transition to a supporting role. With a multi-tiered electricity market system now taking shape, experts like Professor Lin stress the need to accelerate reforms and grid modernization, particularly to meet surging electricity demand from AI development and other emerging industries. The regulation provides the institutional framework to achieve these goals while maintaining system reliability during the energy transition.
