Beijing pushes for more efficiency in new energy sector

Beijing is shifting its focus from expanding renewable energy capacity to optimizing its efficient use and grid stability, with an emphasis on new energy storage solutions and the marketization of energy prices. The overcapacity in batteries and solar cells will continue to drive global prices down and create tough competition for European companies.

Beijing’s heavily subsidized new energy sector has expanded rapidly, with installed solar and wind capacities reaching 886 GW and 520 GW, respectively, in 2024. Having reached its 2030 goals six years earlier, Beijing can afford to pull back on subsidies and let the sector adjust to market pricing. On February 9, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) announced the replacement of costly subsidized feed-in tariffs with a market-based electricity pricing mechanism (机制电价), effective June 1. Under this system, electricity prices will be determined through an annual bidding process run by provincial governments. Under the new pricing scheme, some consolidation in the market is expected.

To further ensure efficient use of wind and solar energy especially during peak times, the government is also promoting China’s new energy storage manufacturing industry with an action plan. The plan aims to drive breakthroughs in next generation batteries and to promote their application in power supply and grid operations. It also outlines the cultivation of three to five leading energy storage enterprises by 2027. 

The “New Three” sectors of electric vehicles (EV), solar and batteries continue to contribute to China’s export economy, accounting for 26 percent of all GDP growth in 2024. As with EVs, China’s cultivation of the solar and battery sectors follows the same pattern: rapid expansion of the industry with massive subsidies, then exposing the sector to market forces for consolidation. The leaders in the field will look to export overseas to escape the domestic price war. European companies will find it difficult to keep up with rapid developments and low prices offered by these companies. 

Wendy Chang, Analyst at MERICS: “China is taking critical next steps with its new energy sector by exposing it to market pricing, while also stepping up efforts in energy storage to help stabilize solar prices and the grid. Beijing has bet big on EVs, solar, and batteries to drive economic growth. We can expect that the winners emerging after these domestic changes will contribute to solar and energy storage exports going forward.”