China's Energy Transition

V. Modernizing Energy Governance

High-quality development in China’s energy sector requires a significant effort to modernize energy governance and establish a new energy-producing dynamic in tandem with this effort. Through deeper reform, improved policies, strategic plans, and the rule of law as guarantee, China has been able to fully leverage the decisive role of the market in resource allocation while ensuring that the government better plays its role. This has created an enabling environment for the green and low-carbon energy transition.

1. Building a Fair and Open Energy Market with Effective Competition

China has furthered market-oriented reform in the energy sector. It has accelerated the development of a market structure and system allowing effective competition, and has improved the mechanism for having energy prices determined primarily through market forces. The country has also focused on building a unified national market, removing barriers within the energy market, and facilitating smooth and efficient market operations. These efforts are designed to create a business enabling environment that is stable, fair, transparent and predictable.

Advancing market-oriented reform in the energy sector.The monopoly held by power grid enterprises in the purchase and sale of electricity has been largely eliminated, and market competition has been introduced into power generation and sale. Private investment is now welcome in power distribution, and as a result, new market entities are thriving in the energy sector, including integrated energy service providers, virtual power plants, and new energy storage enterprises. Private enterprises have become the main force in China’s new energy sector, making up about 60 percent of all wind turbine manufacturers and almost all photovoltaic equipment manufacturers. The reform of oil and gas institutions is making further progress. A national oil and gas pipeline network corporation has been established, gradually creating a landscape wherein oil and gas are supplied by multiple entities through diverse channels, transported via a unified, highly efficient network of pipelines, and sold in a fully competitive market.

Developing a unified national energy market. China has accelerated progress on a unified national electricity market system that efficiently coordinates trade within and between provinces and regions and integrates medium- and long-term trade, spot trading, and trade in ancillary services. Trading centers for electricity, oil and gas, and coal have been established to create open and transparent energy trading platforms with complete functions. The share of market-traded electricity as part of the national total electricity consumption increased from 17 percent in 2016 to 61.4 percent in 2023. The share of market-traded wind and photovoltaic power accounted for 47 percent of total wind and photovoltaic power generation in 2023. These developments have contributed to a better allocation of electricity and a more efficient utilization of renewable energy.

Improving energy price formation mechanisms. Market-based energy pricing reform is furthering in China. The country encourages the orderly market trading of electricity from various energy sources and works consistently to improve its feed-in tariff policies for new energy. It has completely removed price controls over electricity for industrial and commercial use. China has established a capacity tariff mechanism for coal-fired power to transition coal from being the primary power source into serving a supporting and balancing role. The country has issued policies on tiered electricity pricing for energy-intensive industries to help conserve energy and reduce emissions. It has improved its pricing policy based on time of use to guide power users to reduce peak demand and shift their energy use to off-peak hours. It has established a price regulation system for natural monopolies that is based on authorized costs plus reasonable profits, and places equal emphasis on both incentives and constraints. Additionally, the country has improved its refined oil pricing mechanism to better reflect changes in international crude oil prices and domestic supply and demand dynamics. Advances have also been made in the market-oriented reform of natural gas citygate prices, as well as in the medium- and long-term contract system and market-based price formation mechanism of coal.

2. Strengthening Government Guidance and Services

China has been accelerating the transformation of government functions and bringing into full play the strategic guiding role of national development plans. It has strengthened the coordination of fiscal, taxation, investment, financing, and other macroeconomic policies, reinforced market regulation, and improved its public services, in order to ensure both efficiency and fairness in its energy transition.

Boosting the guiding role of development plans. China has been promoting a strategy to optimize energy production and consumption. It has formulated medium- to long-term and five-year overall plans for the energy sector as well as special plans for the development of renewable energy. All of them are overarching plans for green and low-carbon development of the energy sector. They guide the directions for energy transition, the deployment of major energy projects, the allocation of public resources, and the use of private investment. China has strengthened coordination of its plans on energy with those on eco-environmental protection and territorial space utilization so as to provide essential safeguards for the green and low-carbon transition.

Bolstering policy support. China has taken steps to accommodate the green and low-carbon transition of its energy sector by establishing a system of standards for clean energy. It has introduced a catalogue of industries that support the transition, and has formulated and improved industrial support policies accordingly. Additionally, increasing support from the central budget, local government special bonds, and the National Green Development Fund has been given to clean and low-carbon energy projects. The country is creating a green financial system to guide financial institutions in increasing green loans under market principles in accordance with the rule of law, while also supporting enterprises in issuing green bonds. Furthermore, the country has optimized the approval and registration process for clean and low-carbon energy projects, and streamlined the management procedures for distributed energy investment projects.

Raising the efficacy of oversight and regulation. China has worked to improve its regulation of natural monopolies in the energy sector. The country promotes non-discriminatory and fair access to power grid and oil and gas pipeline facilities by third parties. It has been strengthening regulation of market transactions, pricing mechanisms, and information disclosure. Actions that disrupt market order are swiftly rectified to ensure that market rules are observed. Oversight on the implementation of major plans, policies, and projects has also been strengthened, and renewable energy integration and consumption, the construction and operation of electricity balancing facilities, and the consolidation and upgrading of power grids in rural areas are also subject to better regulation. New methods of oversight and regulation in the energy sector have been adopted, as a new credit-based regulation mechanism has been established and the internet-based model has been widely promoted. An electricity safety oversight and regulation framework covering risk control of large power grids, power emergency response, dam safety, and cybersecurity risk control have been established and improved to ensure the safe and stable operation of power systems and a reliable supply of electricity.

3. Reinforcing the Rule of Law in Energy Transition

China ensures sound lawmaking, strict law enforcement, and impartial administration of justice. It applies the rule of law in consolidating the foundations of the energy sector, stabilizing public expectations, and delivering long-term benefits. The goal is to reinforce the rule of law in energy governance.

Developing a complete legal system. China has established a comprehensive legal framework to support its energy transition. This legal framework mainly comprises the Energy Conservation Law and the Renewable Energy Law, supplemented by the Cleaner Production Promotion Law, the Circular Economy Promotion Law, the Interim Regulations on the Administration of Carbon Emissions Trading, and others. China is also working to establish an eco-environmental code, and to accelerate the formulation of an energy law. There are also plans to revise the Renewable Energy Law and the Electric Power Law. These efforts aim to better promote green production and consumption, and to strengthen incentives and constraints that encourage energy conservation, non-fossil fuel development, renewable energy prioritization, and green energy use.

Advancing law-based government administration. China has made further efforts to improve its law-based government administration. The country ensures that the rule of law is integrated throughout the formulation, implementation, supervision and management of its energy strategy and related plans, policies and standards. It has applied a system for disclosing information on administrative law enforcement, a recording system for the whole process of law enforcement, and a legal review system for major law enforcement decisions. It has established a system of benchmarks for administrative discretion to promote strict, procedure-based, impartial, and non-abusive law enforcement. Additionally, China is moving forward with the reform of its administrative review system to improve the procedures for accepting administrative review applications, rules on evidence, and review mechanisms, to protect the lawful rights and interests of enterprises and citizens in energy production and consumption. The country is also carrying out in-depth legal awareness activities in the energy sector and has implemented a responsibility program in which law enforcement departments are responsible for raising public awareness of the law to ensure that the entire society fulfills its obligations of green consumption.

Improving judicial services. China has made all-round efforts to improve judicial services to support high-quality development of the energy sector and to achieve its peak carbon and carbon neutrality goals through impartial administration of justice. The Supreme People’s Court has established an Environment and Resources Division to handle cases related to the rule of law in the eco-environmental field, and nationwide there are 2,800 special institutions and organizations where such lawsuit cases are heard. The authorities have published judicial interpretations and guidelines to provide clear guidance for courts in applying the law and adjudicating cases related to energy transition.