In Depth: Despite the Summer Heat, China’s Power Prices Keep Dropping

China is experiencing an unusual phenomenon in the summer of 2025: instead of the expected rise in electricity prices due to high air conditioning use, many regions have seen a significant drop in spot electricity prices. In Guangdong, the country’s largest power-consuming province, July spot prices repeatedly fell below 0.3 yuan (4.2 US cents) per kWh, hitting a monthly low of under 0.24 yuan. Neighboring Guangxi saw prices fall even further, reaching less than 0.18 yuan/kWh, an all-time low for the region. This price slump isn’t limited to the south; provinces from industrial powerhouses like Jiangsu and Shandong to renewable-rich zones such as Inner Mongolia and Gansu have also witnessed sharp declines, driven by surging renewable energy capacity, weakened industrial demand, and regulatory changes to the electricity market[para. 1][para. 2][para. 3][para. 4][para. 5].

While these lower prices benefit manufacturers struggling amidst economic slowdowns, power generators are facing squeezed profits and threats to future investment. Beijing must now balance sustaining industrial growth with ongoing reforms meant to foster a greener and more efficient grid[para. 6][para. 7]. According to Lambda, a spot electricity market service provider, nearly all provinces with formal spot markets had average prices far below coal’s benchmark in the first half of the year; even in western Inner Mongolia, prices, though above the coal benchmark, had dropped 47% year-over-year. Some regions, like Shandong and Zhejiang, even experienced “negative prices,” where power generators paid customers to take excess supply. Longer-term contract prices also fell sharply: Guangdong’s average annual contract price fell nearly 30% from 0.55 yuan/kWh for 2023 to 0.39 yuan/kWh for 2025, while in Gansu, average contract prices dropped 20% year-on-year to 0.24 yuan/kWh[para. 8][para. 9][para. 10][para. 11][para. 12][para. 13][para. 14][para. 15][para. 16][para. 17].

This “perfect storm” results from loose supply-demand, falling coal prices, and rapid market reforms. Industrial demand for power is softening: electricity use in the industrial sector grew just 2.4% in the first half of 2025—downward from 6.5% in 2023 and 5.1% in 2024. Meanwhile, supply has soared, especially from renewables. As of June 1, 2025, wind and solar projects no longer have guaranteed grid purchase, thrusting them into competitive spot markets. In the first five months of 2025, almost 200 GW of solar capacity was added—a 150% increase year-on-year—breaking records for monthly installations. Coal prices have slumped, further driving electricity prices down[para. 18][para. 19][para. 20][para. 21][para. 22][para. 23][para. 24][para. 25].

Looking ahead, consumers might not benefit from low prices forever. As renewables—prone to intermittency—penetrate the grid more deeply, the overall system’s long-term operating costs will rise due to the need for backup and ancillary services. These costs, projected to increase system costs by about 0.01 yuan/kWh for every 1% rise in renewable share, are largely borne by generators now but are expected to be increasingly shifted to end-users. Some, like consumers in Shanxi, already face higher ancillary charges offsetting spot price drops[para. 26][para. 27][para. 28][para. 29].

Market reforms have introduced an “off-market price settlement mechanism,” offering compensation to renewable producers if market prices fall below a set benchmark, but requiring repayment if prices exceed it. However, local authorities are uncertain about where to set this mechanism price, creating market uncertainty and risks for renewables investment[para. 30][para. 31][para. 32][para. 33][para. 34][para. 35]. In June 2025, solar installations plummeted by nearly 40% year-on-year and by 85% month-on-month—signs that market confidence is shaken, with weak investment appetite and canceled projects. This highlights the complexity of balancing cheap prices, grid stability, and continued green development as China’s power sector undergoes reform[para. 36][para. 37][para. 38][para. 39][para. 40].