In February 2025, China introduced a new policy aimed at steering the renewable energy market toward market-driven competition. Before the policy known as No. 136 was introduced, most renewable energy projects benefited from a fixed-price contract paid in line with the coal-fired power price. Deployment was rapid.
China’s renewable energy capacity was approximately 1,410 GW at the end of 2024. PV contributed 886 GW of capacity to the total, and wind 520 GW. Total PV and wind connections accounted for more than 40% of the country’s energy mix, nearly matching the total coal-fired capacity of 1,445 GW. Energy storage has surged too, reaching 80 GW/182 GWh of installed capacity with growth driven by storage pairing mandates.
There have been challenges, notably increased grid congestion and curtailment. In response, Chinese local governments have been mandating energy storage is paired with renewables since 2022, usually at 10% to 30% of the renewable capacity at a one to two-hour duration. These mandates have become a cost burden as co-located storage cannot participate in wholesale or ancillary service markets to recover costs. Meanwhile, offering fixed-price contracts to generators does not incentivize renewables to shift their output to match electricity demand.
Governments have tried to solve this issue by allowing renewable projects to comply with the mandate through offtake agreements with equal capacity of standalone projects, or by allowing co-located storage to participate in power markets provided technical requirements are met. With policy No. 136, more significant change is coming.
Chinese CfDs
Under the new framework, all renewable energy projects commissioned after June 1, 2025, will engage in market-based trading and the storage pairing mandates will be removed.
China is also introducing contracts-for-difference (CfD) auctions, meaning new renewables projects will be able to compete for offtake agreements covering a portion of their output. CfDs are usually used by governments in countries such as the United Kingdom to incentivize renewables development by offering long-term revenue certainty through an offtake agreement. The CfD auction sets a “strike price” for electricity – the price that projects with a CfD are paid for generation. It means projects will be compensated if the wholesale market price is below the CfD strike price, but they must also return extra revenues when the market price is higher than the strike price.
Shandong province was the only region in China to publish guidelines for a market-oriented power policy as of May 2025. Despite the changes, existing projects must still comply with storage pairing mandates. The competitive bidding process for solar and wind CfDs will also be organized separately in 2025. Successful projects will also receive offtake agreements that cover the same proportion of generation as the existing guaranteed purchase mechanism, 85% of generation for solar and 70% for wind. This is in keeping with No. 136 rules requiring each province ensure CfDs cover a similar portion of generation as its guaranteed purchase agreements.
Shandong’s guidelines also outline specific key projects and technology targets for 2025, including an ambitious goal of achieving 30 GW of energy storage capacity.
Deadline rush
The new CfD mechanism provides stable revenue streams, but renewable energy projects are expected to receive lower payments compared with the previous scheme. In many provinces, the spot market price for solar is lower than the coal benchmark price. Developers are rushing to install solar projects ahead of the June 1 deadline as a result. Distributed PV is expected to be a major contributor due to quick installation timelines. In the first quarter of 2025, China added 59.7 GW of PV, a 31% year-on-year increase. This included 23.4 GW of capacity from utility-scale solar projects, up 7% year on year, and 36.3 GW from distributed PV, up 52% on the previous year. China’s PV installations therefore remain robust, with added capacity forecast at 310 GW for 2025 – half of expected global solar installations.
Future capacity
Wind is not as influenced by the new policy as solar and storage, due to longer lead times. Projects that will be commissioned in 2025 will have turbines ordered one or two years ago, meaning an installation rush is not possible. Wind’s capture price in the wholesale market also tends to be higher than solar, as it usually generates more power during peak demand periods.
For battery energy storage, February 2025 data suggest approximately 70 GW/200 GWh of contracted and under-construction BESS projects will be commissioned in 2025. There is a risk that some will be canceled, but most are being built as planned. The shift to business-driven utility-scale energy storage development may significantly reduce storage installations in the short term, especially in the absence of additional support. S&P Global Commodity Insights forecasts that China will install 44 GW/116 GWh energy storage in 2026, which is 36% less capacity than its projection for 2025.
The rush to install PV and storage in 2025 will likely affect 2026 deployment. China’s share of global annual installations is set to drop by 7% for PV and 15% for storage from 2025 to 2026. This will push Chinese manufacturers to expand more aggressively to overseas markets.
Ripple effects
PV module prices have already been affected. The surge in PV installations in early 2025 led to a 5% to 6% increase in PV module prices globally. Sustained growth for installations in China will be critical to avoid a collapse in module prices in the second half of 2025. By contrast, prices for energy storage and wind turbines in China continue to decline due to oversupply, currently standing at less than half the prices seen in Europe and the United States. As Chinese manufacturers seek to expand into international markets amid slowing domestic demand, overseas prices will continue to fall. However, cybersecurity concerns and localization requirements could act as barriers to entry for Chinese manufacturers.
