To implement the decisions and arrangements of the Party Central Committee and the State Council on advancing price reform in the energy sector, accelerating the development of a new energy system, guiding the steady and orderly construction of regulating power sources, ensuring the safe and stable operation of the power system, and supporting the green and low-carbon transformation of energy, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) recently jointly issued the Notice on Improving the Generation-Side Capacity Tariff Mechanism (hereinafter referred to as the Notice).

The Notice puts forward measures to improve the capacity tariff mechanisms for coal-fired power, gas-fired power, pumped storage and new-type energy storage by category, in response to the needs of building a new power system and power market system. First, all regions shall raise the capacity tariff standard for coal-fired power based on local conditions, and may establish a capacity tariff mechanism for gas-fired power with reference to coal-fired power. Second, for pumped storage power stations newly started in recent years, a unified local capacity tariff shall be formulated on the principle of covering average costs. Third, a capacity tariff mechanism for independent new-type energy storage on the grid side will be established, with the tariff standard determined based on factors such as discharge duration and peak-shaving contribution. The Notice clarifies that after the continuous operation of local electricity spot markets, a reliable capacity compensation mechanism on the generation side will be established in an orderly manner. Various types of generating units will be compensated under unified principles according to their available peak-shaving capacity, and the scope of compensation will be gradually expanded in light of the development of the electricity market and market-oriented reform of electricity prices, so as to fairly reflect the peak-shaving contribution of different units to the power system.

The Notice requires that all regions carefully organize implementation, conduct sound policy interpretation, guide enterprises to strengthen operation and management, and promote the sound development of the industry. It also urges accelerating the establishment and improvement of the power market system, promoting the fair participation of regulating power sources in the market, giving full play to their regulatory role, and supporting the construction of a new power system.