Companies with high electricity efficiency and load factors will enjoy lower transmission and distribution costs, while those occupying grid capacity without full use will pay more for idle resources.

The National Development and Reform Commission recently issued the "Notice on Provincial Grid Transmission and Distribution Prices, Regional Grid Transmission Prices, and Related Matters for the Fourth Regulatory Cycle." A new round of domestic transmission and distribution pricing will officially take effect on August 1, impacting electricity costs for commercial and industrial users and the profit models of new business forms like energy storage for the next three years.

The core reform of the new rules lies in moving away from a single energy consumption-based billing model, upgrading to a composite pricing system that considers electricity volume, capacity, reliability, and cross-regional mutual aid. This aims to better adapt to the new power system dominated by renewable energy.

Compared to the third regulatory cycle, the volumetric electricity price component within the two-part tariff for provincial grids in about 20 provinces has generally decreased by less than 5%, while the capacity (demand) price component has risen by 3% to 5%. Overall, transmission and distribution prices remain stable.

Simultaneously, the volumetric electricity prices within the transmission and distribution tariffs for the five major regional grids show both increases and decreases, further widening the east-west electricity price gap.

Industry insiders believe this pricing adjustment is not simply a uniform increase or decrease. Instead, it restructures electricity prices to more closely reflect actual power supply costs. Using transmission and distribution pricing as a lever, it aims to incentivize more refined electricity use by businesses, unlock profit potential for new business models like energy storage, and reshape the flow of national power resources and regional industrial layouts.

Rewarding Efficiency, Penalizing Inefficiency in Commercial & Industrial Power Use

The pricing methodology for the fourth regulatory cycle is more scientific, with the most critical innovation being the separate determination of the single-rate and two-part tariff structures within the volumetric electricity price, according to Wang Xiao (a pseudonym), a business director at an electricity retail company.

Previously, many regions combined single-rate and two-part tariffs in their calculations, leading to cost allocation where high-voltage users effectively subsidized medium- and low-voltage distribution networks. The new policy refines voltage level classifications, providing a clear cost signal: higher voltages pay less, while lower voltages pay a reasonable share.

Transmission and distribution prices refer to the charges for the transmission and distribution services provided by grid companies to users. They are determined based on "permitted costs plus a reasonable return" and are adjusted every three years.

Commercial and industrial users can generally choose between a single-rate or a two-part tariff for transmission and distribution charges. The former charges based on electricity consumption volume, while the latter considers both electricity volume and the grid capacity reserved by the user.

Here, the volumetric electricity price corresponds to the transmission and distribution cost per kilowatt-hour, while the capacity (demand) price corresponds to the cost of occupying grid resources.

According to calculations by analysts including Wang Weijia from Huatai Securities, the adjustments in the fourth regulatory cycle exhibit a "compress the high, lift the low" characteristic.

Nationally, compared to the previous cycle, the volumetric component of the two-part tariff for voltage levels from 1-10 kilovolts (kV) to 220kV has decreased across all brackets by 2.6% to 7.6%. The weighted average line loss rate (power loss during transmission and distribution) has dropped by 0.46 percentage points. Combined, this opens a dual cost-reduction window on "transmission/distribution volumetric price + line losses" for large industrial users.

Meanwhile, the single-rate volumetric price for medium and low voltages has increased slightly by 1% to 1.6%.

While volumetric prices see minor decreases, capacity (demand) prices are rising, with an overall increase of 3% to 5%.

According to calculations by Jiang Tao, chief analyst of utilities, environmental protection, and coal at Sinolink Securities, capacity price increases are notable in Hubei, Hunan, and the three northeastern provinces. Hunan saw a year-on-year increase of 0.11 fen/kWh, while Hubei, Heilongjiang, Jilin, and Liaoning increased by 0.07 fen/kWh.

For high-energy-consuming large industrial users, the capacity (demand) charge within the two-part tariff constitutes a major portion. In the new pricing determination, the widespread decrease in the volumetric price means the marginal cost of using more electricity is lower.

The widespread increase in capacity (demand) prices means industrial users who reserve large grid capacity but have high idle rates and low actual load factors may face higher transmission and distribution costs.

"Large industrial users operating at full load 24/7, like data centers and aluminum smelters, are big winners under the new policy. For a user with 100 million kWh annual consumption, a 5% drop in the volumetric price could save at least several hundred thousand yuan per year," said Wang Xiao.

For venues like hotels, charging stations, office buildings, and seasonal production facilities that reserve large capacity but have low, fluctuating load factors for most of the time, the cost of "occupying without using" has increased significantly.

He advises companies to recalculate their costs based on their specific usage patterns before the August 1st adjustment. If their load factor is low, they might consider opting for the single-rate tariff.

In the view of Xin Ligang, a market research expert at the Shanxi Energy Internet Research Institute, the increase in capacity (demand) prices across multiple provinces will raise fixed electricity cost pressures for low-load enterprises, thereby spurring demand to reduce redundant capacity and procure regulation services.

He believes the new policy creates a closed-loop revenue model of "capacity compensation + spot market + frequency regulation + demand response services" for independent energy storage, addressing the single pain point of limited profit avenues.

The decrease in volumetric prices widens the arbitrage space for energy storage in peak and off-peak periods. The increase in capacity prices fosters demand for peak-shaving services and clarifies the investment hierarchy for energy storage across regions.

For example, energy storage in the Northwest region can obtain multiple cross-regional revenue streams, while in the North China region, capacity compensation can serve as a revenue floor.

Furthermore, full-cycle, transparent oversight is a significant regulatory upgrade accompanying the new policy. Unlike the third cycle's one-time, post-facto, and relatively lenient review, the fourth cycle requires statistical collection of foundational data related to transmission and distribution pricing.

This includes assets, costs, revenue, transmission/distribution/sales volumes, load, user-applied capacity, line loss rates, and investment plan completion progress for each voltage level. This data must be reported to the NDRC (Price Department) and provincial price authorities by the end of May each year.

This dynamic verification significantly enhances regulatory transparency in the natural monopoly segment of the grid.

Transmission and Distribution Pricing as a Regional Economic "Regulating Valve"

Behind the minor decreases in volumetric prices and slight increases in capacity prices across many provinces lies a fundamental shift in the power value system.

With the continuous expansion of photovoltaic and wind power installations, the volatility and intermittency of renewable energy have become prominent. The core challenge for the power system in the "15th Five-Year Plan" period has shifted from the scale of installed capacity to the urgent need for reliable power and capacity support.

Consequently, the grid's charging logic is transforming from "pay for what you use" to a new stage that considers electricity volume, supply reliability, and the occupation of backup resources.

Besides changes in provincial grid transmission and distribution prices, adjustments to regional grid transmission prices are a notable signal in this round, primarily affecting cross-provincial and cross-regional power transmission.

"The determination of regional grid transmission prices in this cycle continues the two-part structure of volumetric price + capacity price," according to Jiang Tao's calculations.

Among the volumetric prices for the five major regional grids (North China, East China, Central China, Northeast China, Northwest China), the Central China region increased by 0.34 fen/kWh compared to the third cycle, North China increased by 0.26 fen/kWh, while the Northwest region decreased by 0.21 fen/kWh.

Jiang Tao explained that the simultaneous increase in both volumetric and capacity prices in Central China reflects rising costs for cross-regional power reception, supply assurance, and its hub grid network.

The significant decrease in the Northwest's volumetric price, leading to lower overall transmission and distribution costs, likely reflects the unit cost dilution brought by the expansion of renewable energy outbound transmission and improved channel utilization.

Industry observers suggest that the divergence in regional grid transmission prices may foster a normalized cross-regional trading pattern of "Northwest supply, Central and Eastern demand."

As transmission and distribution costs fall in the Northwest, more energy-intensive industries may relocate westward, making electricity prices a "regulating valve" for regional economies.

Xin Ligang stated that this transmission and distribution pricing policy reshapes the supply-demand landscape for system capacity, the revenue models for various market participants, and the flow of regional resources through a three-layer transmission mechanism: reconstructing user-side capacity costs, differentiating cross-regional transmission price gaps, and increasing the rigid demand for load regulation.

From the perspective of regional resource flow patterns, he pointed out that the cross-provincial transmission volumetric price in the North China region increased by 31.7%, leading to a sharp rise in cross-regional frequency regulation costs and profit compression. Frequency regulation demand in regions like Beijing-Tianjin-Hebei may shift to within-province solutions.

The cross-provincial transmission price in the Northwest region decreased by 14.79%. This allows adjustable resources from local wind-PV paired energy storage to be transmitted to provinces like Shanxi and Henan at lower costs, forming the "Northwest supply, Central and Eastern demand" cross-regional trading pattern.

Preferential tariffs for dedicated outbound transmission lines will further enhance the willingness for energy storage output from the west, amplifying the profit potential for Northwest energy storage.

"During the '15th Five-Year Plan' period, China's 'West-to-East Power Transmission' must further expand in scale to reliably meet the energy demand of central and eastern regions," Wan Jinsong, Vice Minister of the National Energy Administration, recently stated publicly.

He indicated that the power sector in the "15th Five-Year Plan" period will accelerate the construction of clean energy bases like wind and solar in the "Three Norths" regions (Northwest, North, Northeast) and the construction of outbound transmission channels. It is estimated that new West-to-East power transmission capacity will exceed 80 million kilowatts.

Simultaneously, efforts will be intensified to promote "Western Energy for Western Use," guiding the orderly transfer of energy-intensive industries to the west and promoting the coordinated layout of advanced manufacturing, computing power, hydrogen energy, and other industries with the development of clean energy bases.