A major notice has been issued by the National Development and Reform Commission and the National Energy Administration!

National Development and Reform Commission, National Energy Administration regarding

Notice on Improving the Capacity Tariff Mechanism on the Generation Side

NDRC Price [2026] No. 114

To the Development and Reform Commissions and Energy Bureaus of all provinces, autonomous regions, municipalities directly under the central government, and the Xinjiang Production and Construction Corps; to the Tianjin Municipal Bureau of Industry and Information Technology, the Liaoning Provincial Department of Industry and Information Technology, the Chongqing Municipal Commission of Economy and Information Technology, the Gansu Provincial Department of Industry and Information Technology, and the Beijing Municipal Commission of City Management; to all branch institutions of the National Energy Administration; and to State Grid Corporation of China, China Southern Power Grid Company Limited, Inner Mongolia Electric Power (Group) Co., Ltd., China National Nuclear Corporation, China Huaneng Group Co., Ltd., China Datang Corporation Limited, China Huadian Corporation Limited, State Power Investment Corporation Limited, China Three Gorges Corporation, China Energy Investment Corporation Limited, China Development & Investment Corporation Limited, China Resources (Group) Co., Ltd., and China General Nuclear Power Group Co., Ltd.:

To implement the decisions and arrangements of the CPC Central Committee and the State Council on advancing price reform in the energy sector and accelerating the development of a new‑type energy system, to guide the steady and orderly construction of regulating power sources, to ensure the safe and stable operation of the power system, and to support green economic and social development, the following notice is hereby issued regarding work to improve the capacity‑price mechanism on the generation side.

I. Overall Approach

To meet the needs of the new‑type power system and the development of the electricity market, we will better coordinate secure and stable power supply, the green and low‑carbon energy transition, and the efficient and economical allocation of resources. We will refine capacity‑pricing mechanisms for coal‑fired power, natural gas‑fired power, pumped‑storage hydropower, and emerging forms of energy storage, and further optimize electricity market mechanisms. Following the continuous operation of the electricity spot market, we will systematically establish a reliable capacity‑remuneration mechanism on the generation side, compensating generating units for their reliable capacity in accordance with uniform principles based on peak‑shaving capability, thereby fairly reflecting the varying contributions of different units to the power system’s peak‑demand response.

II. Refining and Improving the Capacity Tariff Mechanism

(1) Improve the capacity‑price mechanism for coal‑fired and natural‑gas‑fired power generation. In accordance with the requirements of the “Notice on Establishing a Capacity‑Price Mechanism for Coal‑Fired Power Generation” (NDRC Price [2023] No. 1501), localities shall increase the proportion of fixed costs recovered through capacity pricing for coal‑fired units to no less than 50%, and may further raise this share based on local market conditions, coal‑fired unit utilization hours, and other relevant factors.

Provincial price authorities may establish a capacity‑based tariff mechanism for natural gas‑fired power generation, with the capacity tariff determined by recovering a specified proportion of the fixed costs associated with natural gas‑fired generating units.

(II) Improving the capacity‑tariff mechanism for pumped storage hydropower. For power stations that commenced construction prior to the issuance of the “Opinions on Further Improving the Price‑Formation Mechanism for Pumped Storage Hydropower” (NDRC Price [2021] No. 633, hereinafter referred to as Document No. 633), the capacity tariff shall continue to be subject to government pricing, with the specific rates determined or reviewed by the provincial price‑regulating authorities in accordance with the procedures set forth in Document No. 633. Upon expiration of the operating period, the tariff shall be re‑determined based on the principle of covering necessary technical upgrade expenditures and operation‑and‑maintenance costs.

In line with the spirit of Document No. 633, which emphasizes gradually recovering costs and generating revenues primarily through participation in the market, power stations that commenced construction after the issuance of this document shall have their capacity tariffs—uniform across newly commissioned projects within the same provincial grid—determined by the provincial pricing authority every three to five years, based on the principle of recovering average costs over the operating period and in accordance with the cost‑parameter rules set forth in Document No. 633. A corresponding reduction shall be applied for plants whose full‑capacity generation duration falls short of six hours. The applicable implementation period may be determined after comprehensive consideration of factors such as the development of the electricity market, system demand, and the sustainable operation of the power stations. Meanwhile, pumped-storage hydropower stations shall independently participate in markets for electric energy and ancillary services; the market revenues they earn shall be shared among the stations in proportion, with the specific sharing ratio established by the provincial pricing authority, while the remaining portion shall be used to offset system operating costs and distributed to end‑users.

(3) Establish an independent capacity‑based tariff mechanism for grid‑side novel energy storage. For grid‑side novel energy storage facilities that serve the safe operation of the power system and do not participate in distributed storage, local authorities may grant capacity tariffs. The level of the capacity tariff shall be based on the local coal‑fired power capacity tariff standard and adjusted as a proportion of peak‑shaving capability (the adjustment factor being the ratio of the duration of continuous full‑power discharge to the longest annual net load‑peak duration, with a maximum value of 1), taking into account developments in electricity market reform, system demand, and other relevant factors. Grid‑side novel energy storage facilities shall be managed under a roster system; specific management requirements will be further specified by the National Energy Administration in light of analyses of electricity supply‑demand conditions and measures to ensure supply security. The detailed project roster shall be formulated jointly by the provincial energy authorities and the price‑regulating authorities.

III. Establishing a Reliable Capacity Compensation Mechanism on the Generation Side in an Orderly Manner

(1) General requirements for a reliable capacity compensation mechanism. Reliable capacity refers to the capacity of generating units that can provide continuous, stable power supply during peak periods throughout the year. Following the continuous operation of the electricity spot market, provincial pricing authorities, in coordination with relevant departments, shall establish a reliable capacity compensation mechanism at an appropriate time, providing compensation for the reliable capacity of generating units in accordance with unified principles. The compensation standard shall be based on covering the fixed costs that marginal units in the electricity and ancillary services markets are unable to recover, while taking into account factors such as the balance between electricity supply and demand, consumers’ affordability, and the progress of electricity market development, and shall be determined reasonably and adjusted as needed. Regions with a high share of installed renewable energy capacity and substantial demand for reliable capacity should accelerate the establishment of a reliable capacity compensation mechanism. Under national guidance, regions that meet the necessary conditions may, in line with the development of their electricity markets, introduce capacity tariffs through mechanisms such as capacity markets at an appropriate time.

(2) Reasonably define the scope of compensation. The compensation framework under the reliable capacity‑based mechanism may cover coal‑fired and gas‑fired power plants that voluntarily participate in the local market, as well as eligible grid‑side independent advanced energy storage systems, with the scope gradually expanded—taking into account developments in the electricity market and the ongoing reform toward market‑based pricing—to include other units with reliable capacity, such as pumped‑storage hydropower. No duplicate compensation shall be provided for capacity already covered by other forms of assurance. Units subject to government‑set tariffs shall not be eligible for compensation.

(3) Ensure seamless alignment with the capacity‑pricing policy. Following the establishment of a reliable capacity‑compensation mechanism, eligible coal‑fired, gas‑fired, and grid‑side independent new‑type energy‑storage units will no longer be subject to the previous capacity‑pricing regime. On the basis of a relatively well‑developed market framework, provincial pricing authorities may, for pumped‑storage hydropower stations that commence construction after the issuance of this notice, uniformly apply the reliable capacity‑compensation mechanism and allow these stations to participate in electricity‑energy and ancillary‑services markets, with all market revenues accruing entirely to the stations. Pumped‑storage hydropower stations that begin construction after the promulgation of Document No. 633 are encouraged to voluntarily opt into the reliable capacity‑compensation mechanism and to engage in the electricity market.

IV. Improving Relevant Supporting Policies

(1) Improve electricity market trading and pricing mechanisms. Following the refinement of the coal‑power capacity‑price mechanism, local authorities may, based on factors such as supply‑demand conditions in the electricity market and the variable costs of all generating units participating in the market, appropriately adjust the floor price for medium‑ and long‑term coal‑power transactions within their jurisdictions, while ensuring overall power‑supply‑demand balance, and moderately relax requirements regarding the proportion of medium‑ and long‑term contracts that must be signed. Both supply and demand sides are encouraged to incorporate flexible pricing clauses into medium‑ and long‑term contracts, allowing prices to adjust in response to changes in market supply and demand and generation costs. When signing medium‑ and long‑term contracts, local authorities shall not impose mandatory fixed‑price provisions; instead, they may, taking into account power‑supply‑demand dynamics and market structure, require that a specified share of annual medium‑ and long‑term contract volumes be priced flexibly to reflect real‑time supply and demand conditions.

(2) Refine electricity‑tariff settlement policies. The capacity charges and reliable capacity compensation fees for the aforementioned flexible power sources shall be incorporated into local system operating costs. In regions where the spot market operates continuously, the charging and discharging tariffs for pumped storage and grid‑side standalone new‑type energy storage shall be determined in accordance with market rules or based on real‑time spot prices; in regions without continuous spot‑market operation, the pumping (charging) tariff shall follow the procurement price applicable to industrial and commercial users under grid‑agency arrangements, while the generation (discharging) tariff shall be set by the provincial pricing authority, taking into account factors such as charge/discharge losses across different technological pathways. During pumping (charging), pumped storage and grid‑side standalone new‑type energy storage are treated as end‑users, subject to transmission and distribution line‑loss charges and system operating fees, and temporarily billed at the single‑energy‑quantity tariff rate; accordingly, transmission and distribution charges are reduced by the amount of electricity generated (discharged). Market revenues shared proportionally by pumped storage stations shall be settled monthly and finalized annually.

(3) Clarify the methodology for allocating capacity‑related electricity charges among regions sharing pumped storage facilities. The allocation ratio of capacity‑related electricity charges for regionally shared pumped storage power stations shall be determined in accordance with the capacity‑allocation ratio, with market‑based approaches encouraged to achieve optimal allocation. Where the capacity‑allocation ratio has already been specified, it shall be applied as such; where the ratio has not yet been defined but the project has already been approved, the provincial energy and price authorities of the project’s location shall convene the relevant energy and price authorities of the participating provinces to negotiate and finalize the allocation ratio, which shall then be explicitly stated; for newly proposed projects that have not yet been approved, the allocation ratio shall be negotiated in line with the aforementioned principles and clearly set forth in the project approval document.

V. Ensure Effective Organization and Implementation

(1) Strengthen coordination of work. Provincial price authorities shall, in collaboration with relevant departments, refine capacity‑pricing policies and establish, as appropriate, a reliable capacity‑compensation mechanism; ensure meticulous planning and implementation; provide clear policy guidance; and encourage enterprises to enhance operational management, thereby fostering the sound development of the industry. Provincial energy authorities, working together with price authorities, shall conduct rigorous assessments of local power‑system reliability‑capacity requirements. All localities should accelerate the establishment and improvement of a robust electricity‑market framework, enabling pumped‑storage and emerging‑storage units to participate equitably in electricity‑energy markets, ancillary‑service markets, and other market segments, thus better reflecting their regulatory value and facilitating the full realization of their balancing functions. Grid operators shall cooperate in data‑calculation efforts, enter into dispatch‑and‑operation agreements and related contracts with power stations, and carry out market‑revenue accounting and settlement procedures; they shall report annually to the provincial price authorities and to the National Development and Reform Commission (Price Department). The state will strengthen its guidance to localities to promote smooth and steady implementation.

(2) Establish an electricity‑price affordability assessment system. Provincial pricing authorities, in coordination with energy authorities, shall establish a mechanism for assessing users’ economic affordability. The results of such assessments shall serve as a key basis for determining reliable capacity compensation standards, formulating plans and programs for enhancing power‑system regulation capabilities and for developing new‑energy and advanced energy‑storage technologies, and approving projects such as pumped‑storage hydropower. In regions where the power system has ample reliable capacity or where users exhibit limited economic affordability, the approval of new regulating‑capacity projects shall be strictly controlled. Any projects that have not undergone a user‑affordability assessment shall not be included in planning or subject to approval, nor shall they be eligible for capacity charges or reliable capacity compensation.

(3) Strengthen the assessment of capacity‑related electricity charges. In line with management requirements for different types of generating units, refine the methods for assessing these charges, implement tiered evaluation, and encourage units to improve their operational performance and enhance their peak‑shaving capacity. Following the establishment of a reliable capacity‑compensation mechanism, further tighten and strengthen the assessment process to fully leverage the guiding role of capacity‑based pricing. For units that fail to meet the assessment criteria, deductions shall be made from their capacity‑related electricity charges or reliable capacity‑compensation payments; specific details shall be determined by the provincial price authorities in coordination with relevant stakeholders.

National Development and Reform Commission

National Energy Administration