Solar and wind feed-in tariffs keep falling, yet electricity prices are rising—where is the money going?

As of now, six provinces nationwide have announced the results of market‑based competitive bidding for new‑energy electricity prices, and 30 provinces and municipalities have successively issued 136 supporting implementation details. The grid‑connected tariffs for wind and solar power have repeatedly hit record lows—Gansu’s wind‑and‑solar tariff stands at 0.195 yuan per kWh, while Shandong’s is around 0.225 yuan per kWh—nearly one‑third lower than previous coal‑fired power tariffs. Yet even as generation costs continue to fall, many industrial and commercial consumers have found that their electricity bills have not only failed to decline but are quietly rising. Meanwhile, residential electricity rates, driven by tiered pricing, have been surging since July, approaching levels of 800 to 1,000 yuan per month.

And so a simple question has sparked heated debate online: “If electricity generation has become cheaper, why have electricity bills gone up? Where’s the difference going?” (If you find this interesting, please follow and give it a like! Share it with friends who might need it, and let’s keep the conversation going in the comments. If there’s anything inaccurate, feel free to point it out in the comments.)

I. Electricity Tariff Structure: Who Exactly Benefits from the Money We Pay?

To answer this question, we must first clarify that electricity tariffs are not a “revenue” exclusively retained by the power grid; rather, they represent a “pie” distributed among multiple stakeholders.

1) Power generation enterprises: producers of electricity
Approximately half of the monthly electricity bills we pay goes to power generators, covering costs such as coal, natural gas, water resources, and equipment maintenance and operation. Following the introduction of market‑based trading for renewable energy projects like wind and solar, this portion of the cost is settled based on auction‑clearing prices. In other words, costs on the generation side are indeed declining.

2) Grid Enterprises: The Carriers of Electricity
It is true that the power grid collects the revenue, but it functions merely as a “mover” rather than the “electricity‑guzzling behemoth” often portrayed by the public. The grid undertakes the entire spectrum of activities—from power generation to end‑use consumption—including transmission, distribution, substation operations, and maintenance. Costs such as line construction, substation investment, equipment maintenance, and loss compensation are all covered by transmission and distribution tariffs. As the share of renewable energy rises, the grid’s investment requirements and operational‑control challenges have grown substantially, and these expenses constitute one of the primary drivers behind rising electricity prices.

3) Government Funds and Surcharges: The “Hidden Taxes” in Electricity Bills
Each kilowatt-hour of electricity also includes several government funds and surcharges. For example, taking Jiangsu as an illustration:

Renewable Energy Tariff Surcharge: 1.9 cents

0.62 cents for post-relocation support funds for large and medium-sized reservoir resettlers.

A levy of 0.42 cents is imposed on major water conservancy project construction funds.

Post‑migration support funds: 0.24 cents
These charges are allocated to public‑interest sectors such as new‑energy subsidies, water‑conservation projects, and rural‑grid upgrades, and are collected by the power grid on behalf of the government. Although each individual charge is relatively small, their cumulative impact amounts to roughly 5%–10% of electricity prices.

II. The “Invisible Driver” Behind Rising Electricity Prices: Grid Balancing Costs

On the surface, a decline in generation costs should logically drive down overall electricity prices. However, the reality is quite the opposite: as the share of wind and solar power increases, the grid’s system‑balancing costs continue to rise.

The defining characteristic of new energy sources is their instability and lack of controllability. Wind and solar power output is highly sensitive to weather conditions and diurnal cycles—oversupply during the day, undersupply at night; surges on clear days, sluggish performance on overcast ones. To ensure the safe integration of these volatile energy sources into the grid, additional “regulation resources” must be deployed.

These balancing costs mainly comprise the following categories:

1) Thermal power capacity compensation and peak‑shaving/frequency‑regulation charges
To ensure the stable operation of the power system during nighttime or extreme weather conditions, a large number of thermal power units are required to remain on standby. Although these units generate little electricity, they must still maintain operational readiness, necessitating compensation in the form of “capacity payments.” Nationwide, annual coal‑fire capacity‑payment costs have exceeded 100 billion yuan, making it a rigid component of electricity tariffs.

2) Costs of energy storage, peak shaving, and frequency regulation
At present, the development of pumped-storage hydropower and electrochemical energy storage nationwide is accelerating. Energy-storage systems operate on a “charge‑during‑the‑day, discharge‑at‑night” cycle to maintain supply‑demand balance. However, investment in energy storage is substantial, with levelized costs ranging from 0.4 to 0.7 yuan per kWh. These costs are ultimately passed on to end‑user electricity prices through system‑operation charges.

3) Virtual Power Plants and Frequency Regulation Ancillary Services Costs
As the volatility of new energy sources increases, the power grid must leverage resources such as virtual power plants, advanced energy storage, and interruptible loads to participate in real-time frequency and peak‑shaving regulation. Each dispatch incurs costs, which are likewise funded by electricity tariffs paid by market participants.

4) Power Grid Investment and Operations & Maintenance
New‑energy projects are often located far from load centers. To transmit wind, solar, and other renewable power from the northwest to the southeastern coastal regions, ultra‑high‑voltage transmission corridors must be built. The construction cost of UHV lines can reach tens of millions of yuan per kilometer, representing a substantial capital outlay. Grid operators face long fixed‑asset recovery periods and high operating costs, which further drive up transmission and distribution tariffs. In addition, upgrading and renovating distribution networks also entail significant expenses. Without sufficient capacity, grid connection remains impossible—so how many “red‑zone” areas are there nationwide?

Therefore, even if the levelized cost of electricity from wind and solar power falls to RMB 0.2 per kWh, the system‑level “total electricity price” must still account for all the aforementioned balancing costs. When these are factored in, the final cost of green electricity delivered to the end user often reaches RMB 0.7–0.9 per kWh—more than three times the pure generation cost.

III. Document No. 1192: Making “Cost Balancing” Explicit

In September 2025, the National Development and Reform Commission and the National Energy Administration jointly issued the “Notice on Improving the Pricing Mechanism to Promote Local Consumption of New Energy Power Generation” (Document No. 1192), which formally made the “balancing cost”—previously concealed within electricity tariffs—explicit. The core spirit of the document can be summarized in three sentences:

Those who use electricity shall bear the costs of grid regulation.

Whoever occupies the capacity shall pay the transmission and distribution charges;

Who achieves self‑balancing, and who receives relief incentives.

According to Document No. 1192, local‑consumption projects are required to pay transmission and distribution charges as well as system operation fees based on their grid‑connection capacity. In short, pricing is no longer tied solely to electricity consumption (kWh); instead, charges are calculated according to the extent of grid‑path capacity you occupy. For self‑generation‑and‑self‑consumption projects and integrated source‑grid‑load‑storage systems, if they possess self‑regulation capabilities, they can reduce their grid‑capacity footprint, thereby lowering transmission and distribution costs. This means that in the future, whether electricity is “expensive or not” will depend not only on the level of the tariff but also on your ability to achieve self‑balance. By installing energy storage and optimizing their load profiles, enterprises can both alleviate strain on the grid and substantially cut their own electricity expenses.

IV. The New Logic of Electricity Pricing Reform: From “Average Cost” to “Precision Cost”

The rise in electricity prices is not due to renewable energy holding it back; rather, market‑based mechanisms have made previously hidden costs transparent.
From a macro perspective, the electricity pricing structure is shifting from the previous “average allocation” model to a precision‑based cost‑sharing mechanism in which users pay for their own consumption and bear the costs associated with their respective shares.

For the power grid, this is a means of enhancing regulation efficiency and facilitating the integration of new energy sources.

For enterprises, this serves as a compelling mechanism to optimize their energy‑use structure and improve load factors.

For policy, this is key to fostering coordinated development among generation, grid, load, and storage, and to achieving system-wide economic efficiency.

Going forward, as Document No. 1192 is implemented, users with high load factors and strong self‑regulation capabilities will reap significant benefits, while those reliant on the bulk power grid and subject to substantial load fluctuations will bear higher system operating costs. This represents an inevitable choice as the electricity market enters a phase of deep‑seated reform.

Wholesale electricity prices are falling, a result of technological progress; retail electricity prices are rising, the price of system balance.