Chinese Electricity Law Reform

The Electricity Law (1996 and 2015 Amendment)

The Electricity Law of the People’s Republic of China (diànlì fǎ) was first enacted in 1995 and took effect on 1 April 1996, establishing the legal framework for China’s power sector during a period of rapid expansion. The Law governed power generation, transmission, distribution, and consumption, and established the licensing regime for power generation and supply. The original Law reflected a vertically integrated, state-dominated industry structure with limited scope for private or foreign participation.

The 2015 amendment to the Electricity Law was part of a broader power sector reform programme announced by the State Council in Document No. 9 (2015), which articulated the principles of controlling the middle, liberalising the two ends — meaning regulation of grid and transmission while opening generation and retail to competition. The amendment removed provisions requiring government approval of electricity prices, paving the way for market-based pricing mechanisms. It also simplified the licensing regime and introduced provisions supporting renewable energy integration.

Grid Companies and Network Regulation

China’s power grid is dominated by two state-owned enterprises: the State Grid Corporation of China (SGCC) and the China Southern Power Grid (CSPG). SGCC serves 26 provinces covering approximately 88% of the national territory, while CSPG serves the five southern provinces. These grid companies own and operate transmission and distribution networks and are regulated by the National Energy Administration (NEA) under the Ministry of Energy.

The Electricity Law and implementing regulations impose obligations on grid companies to: (1) connect generation facilities to the grid in a non-discriminatory manner; (2) dispatch generation resources according to fair and transparent rules; (3) maintain grid reliability and safety; and (4) purchase electricity from renewable energy sources under guaranteed purchase arrangements. Grid companies are subject to tariff regulation, with transmission and distribution prices set by the National Development and Reform Commission (NDRC) based on a cost-plus or benchmark methodology.

Generation Licensing

Power generation in China requires a power generation licence (dàn lì yèwù xǔkě zhèng) issued by the NEA. The Regulation on the Administration of Power Generation Licences (2016) establishes categories of generation licences, criteria for applicants, conditions for revocation, and ongoing compliance obligations. Licence categories distinguish between grid-connected generation, captive generation for self-use, distributed generation, and renewable energy generation.

Applicants must demonstrate technical capability, financial soundness, environmental compliance, and compliance with grid connection standards. Licenced generators must comply with dispatch instructions, maintain emissions monitoring equipment, and report generation data to the NEA. The licensing regime has been partially relaxed under the 2015 reforms to facilitate entry by independent power producers and renewable energy developers.

Power Purchase Agreements

The power purchase agreement (PPA; gòudiàn hétong) is the contractual foundation of electricity trading in China. Historically, PPAs were standard-form agreements with prices set by the NDRC. The 2015 reforms introduced market-based PPAs negotiated between generators and large electricity users or retail companies. The Long-Term and Medium-Term PPA Guidance (2017) introduced standard PPA templates for different contract types, including physical delivery and financial settlement structures.

PPAs in China typically address: term (1–5 years for medium-term; 5–20 years for long-term, especially renewables); pricing mechanism (fixed, floating, or market-indexed); quantity and curtailment risk; grid connection obligations; change in law provisions; and dispute resolution (often CIETAC arbitration). The NEA has published model PPAs to standardise industry practice and reduce transaction costs.

Electricity Trading Centres

The 2015 reforms established electricity trading centres (diànlì jiāoyì zhōngxīn) in each province as independent market platforms for the trading of electricity. The centres are jointly owned by grid companies, power generation enterprises, and electricity users, and are regulated by the NEA and provincial price authorities. Trading products include day-ahead, intra-day, and real-time balancing markets, as well as ancillary services markets for frequency regulation and reserve capacity.

The Beijing Electricity Trading Centre coordinates inter-provincial and inter-regional trading, supporting the transfer of electricity from resource-rich western provinces to demand centres on the east coast. Trading volumes have grown rapidly, with approximately 50% of total electricity consumption now traded through market mechanisms as of 2025, up from approximately 30% before the reforms.

Reform of the Grid Monopoly

The monopoly position of the grid companies has been progressively reformed through unbundling measures that separate generation, transmission, distribution, and retail functions. The Incremental Distribution Network Reform (2016) opened distribution network investment and operation to non-grid entities, including private and foreign investors, in designated reform zones. The Reform allows licensed distribution companies (pèidiàn wǎng), known as incremental distributors, to operate distribution networks supplied through the grid’s transmission network.

The Retail Electricity Market Reform introduced licensed electricity retail companies (shòudiàn cèsuǒ) that purchase electricity from generators or trading centres and sell to end-users. Retailers compete on price, service quality, and value-added services including energy management and demand response. As of 2025, over 5,000 retail companies are registered across Chinese provinces, though grid companies retain a dominant position in the retail segment through their incumbent customer relationships and distribution network ownership. Further reforms are expected to deepen the separation of network and competitive activities, though the pace of reform reflects the tension between market liberalisation and the strategic role of state-owned enterprises in the energy sector.