Eliminating time-of-use pricing will be the general trend!

Recently, the WeChat official account “PV-info” learned that, following Liaoning Province’s decision to abolish time-of-use electricity pricing and Sichuan Province’s public consultation on abolishing such pricing, …

Recently, Shaanxi Province also announced the abolition of time-of-use electricity pricing, meaning that market‑based users will no longer be subject to peak‑valley price differentials. The prices charged by power‑sales companies on behalf of their customers will primarily be determined by the wholesale average price prevailing across all power‑sales firms and power plants in the market.

Why are more and more provinces abolishing time-of-use pricing? Against the backdrop of China’s electricity market‑oriented reforms, let us examine the underlying rationale behind policy changes and their prospective implications. First, it’s important to avoid a common misconception. Eliminating the time-of-use electricity pricing does not mean that tariffs will no longer vary by time; instead, they will revert to a flat rate. In reality… What has been abolished is the “time-of-use tariff stipulated by administrative regulations,” which has been replaced by the “real-time prices of the electricity spot market.” What appears to be a “cancellation” is, in fact, an upgrade of the electricity pricing mechanism—evolving from price fluctuations driven by administrative directives to those determined by market supply and demand. Secondly, why is the administrative time-of-use electricity pricing being “abolished”? This is because administrative time-of-use pricing is, in essence, a transitional measure arising from the reform of the electricity market. Prior to the full operation of the spot market, the government established fixed “peak‑flat‑valley” periods and corresponding tariff differentials (administrative time‑of‑use rates) to encourage consumers to shift their load and smooth out demand peaks and valleys. However, as the electricity spot market has advanced, the limitations of this approach have become increasingly apparent, even clashing with market mechanisms: 1. It distorts price signals. In provinces where the spot market is already operational, continuing to apply administrative time‑of‑use pricing would expose electricity users to two competing sets of price signals.

Suppose administrative regulations designate 12:00 noon as “peak” hours (when electricity prices are high), yet at that very moment solar generation is abundant, making electricity very cheap on the spot market. If the administrative tariff is applied, consumers will reduce their consumption, leading to curtailment of solar power; if the spot price is used instead, consumers will increase their usage, thereby absorbing more solar output. Since the spot price truly reflects supply and demand, in provinces where the electricity market is well‑developed, abolishing administratively set time‑of‑use tariffs can eliminate artificially imposed price distortions, allowing price signals to be determined solely by the market. 2. It fails to capture the real‑time fluctuations of renewable energy.

Administrative time-of-use pricing is typically adjusted once a year or every six months. Whether it divides the day into seasonal peak‑off‑peak periods or further segments it into finer intervals—such as four‑tiered (peak‑flat‑valley) or five‑tiered (peak‑flat‑deep valley)—the time slots remain relatively fixed and rigid (e.g., 8:00–11:00 designated as peak hours). Meanwhile, renewable energy output is highly sensitive to weather conditions; yesterday’s “peak” may well be today’s “valley.” Administrative directives cannot anticipate tomorrow’s cloud cover or wind‑speed fluctuations. Only real‑time pricing—potentially refined down to 15‑minute intervals—can accurately align with the rapidly evolving supply‑demand dynamics of a modern power system. Third, what are the far-reaching implications of these policy changes? The implementation of this policy will trigger far-reaching ripple effects, primarily impacting three key stakeholders: 1. Industrial and commercial users: No longer able to afford a “wait-and-see” approach; they must adopt rigorous cost‑benefit analysis.

Previously, it was sufficient to adjust electricity consumption patterns according to fixed time-of-use rates—using more during off-peak hours and less during peak hours. Today, however, electricity prices may fluctuate in real time and with great frequency, even swinging sharply between “floor prices” (negative pricing) and “ceiling prices.” Under these circumstances, industrial and commercial consumers must either establish dedicated energy management teams or engage specialized services from power‑sales companies to forecast the next day’s electricity prices and optimize their production schedules. 2. Energy Storage Industry: The arbitrage model must be upgraded.

Previously, energy storage stations relied on fixed peak‑valley price differentials—such as charging during off‑peak hours and discharging during peak hours—to arbitrage, with a straightforward model whose returns could be calculated using a simple calculator. With the abolition of administrative time‑of‑use pricing, these fixed price spreads no longer exist. Energy storage operators must now possess advanced algorithmic capabilities to forecast spot‑market price movements and optimize their charging and discharging strategies. It is foreseeable that, in the future, storage providers capable of accurately predicting prices will capture excess profits, while low‑tech projects that merely exploit policy‑driven price differentials will face the risk of losses. 3. Virtual Power Plants (VPPs) and Load Aggregators: Entering a Period of Rapid Growth

When electricity prices become extremely complex and difficult to forecast, the vast majority of small and medium-sized enterprises lack the resources to cope—due to a shortage of talent and inadequate systems. This has given rise to a growing demand for load aggregators, who pool the energy consumption of hundreds or even thousands of small factories and retail outlets, trading on the spot market on their behalf or using smart control to help customers shift usage to periods of low prices and reduce it during high‑price spikes. This could well be the next major growth opportunity in the power sector over the coming years. Finally, a summary. The core objective of China’s power‑sector reform is to “regulate the middle while liberalizing both ends.” By removing administrative intervention, the generation side (the seller) and the consumption side (the buyer) are allowed to compete directly in the market, with the resulting transaction price reflecting the true market value of electricity as a commodity. The elimination of time‑of‑use tariffs—distinguishing between peak and off‑peak periods—signals that China’s electricity market is shedding its “nanny‑state” approach to administrative guidance. Instead, price fluctuations, acting as an invisible hand, will compel society at large to enhance energy efficiency and facilitate the integration of renewable energy. It is foreseeable that by 2026, more provinces will phase out time‑of‑use pricing—particularly those with well‑developed renewables and mature spot markets. In this new landscape, electricity prices will no longer be a static policy but rather a dynamic curve.