China will phase out its decades-old time-of-use electricity pricing system — where electricity is priced differently depending on the time of day — as it steps up efforts to better align pricing with a power supply increasingly shaped by renewable energy. 

In recent months, nine regions — including the southwestern Guizhou, the northwestern Shaanxi, and the central Hubei provinces — have formally transitioned away from time-of-use electricity pricing systems. The eastern Jiangsu and the northern Shanxi provinces have also announced plans to shift away from the time-of-use system but have yet to implement official policies.

Time-of-use electricity pricing was introduced in the 1980s — when coal and thermal power dominated the energy market — to ease pressure on the power grid. Under the mechanism, regulators divide the day into peak, flat, and off-peak periods — and, in some regions, ultra-peak hours — and set electricity costs for each based on expected consumption patterns. Prices are higher during peak hours, typically from 6 a.m. to 10 p.m., when demand is highest, and lower at night. 

The system is considered the norm among Chinese consumers and has long shaped daily habits. Many — especially older residents — wait until nightfall to switch on their air conditioners in summer, while electric scooter users often delay charging their batteries until off-peak periods to save on electricity bills. 

Regions with abundant renewable energy, such as the northwestern Qinghai and the southwestern Yunnan provinces, where high solar intensity has spurred greater solar farm development, have larger electricity supplies. Yet national adoption of the time-of-use system means that midday hours in these regions are still considered as peak periods, elevating prices despite weaker demand.

This disconnect leads to distorted prices that “no longer accurately reflect real-time supply and demand conditions in a renewable energy-heavy power system,” Han Fang, an official at the China Electricity Council, told domestic media.

China’s national electricity market — launched in 2017 and implemented across all regions as of last year — also means that electricity is bid for in real time by providers. This “power stock market” produces prices aligned with immediate supply and demand, according to Han, and further diminishes the relevance of the time-of-use system. 

Regional governments’ shift away from the time-of-use system reflects the implementation of previous national reforms. Last December, the central government issued guidelines for the mid- and long-term development of the electricity market, announcing that electricity brokers will no longer be required to pay government-set time-of-use prices beginning March 1 of this year.

Under China’s “dual carbon” goals, the country has in recent years stepped up efforts to expand its renewable energy resources, with wind and solar accounting for more than 60% of the country’s total installed power generation capacity last year, according to data from the National Energy Administration. 

Editor: Marianne Gunnarsson.

(Header image: VCG)