How to Read China's Capacity Payments and Ancillary-Services Market: Coal Capacity Price, Pumped-Storage Two-Part Tariff, and the 2025 Basic Rules

Short answer. When a Chinese project model shows "capacity revenue" or "ancillary-service revenue", ask which document creates it. China's market rules name three transaction types — energy, ancillary services and capacity; ancillary-service trading is defined as market-based provision of paid services, while capacity cost recovery is described as a mechanism to be built gradually, exploring capacity compensation and capacity markets. The national documents this guide found that actually set a capacity price are two: one for coal units and one for pumped storage. This guide maps the documents to those three layers, from the texts on gov.cn and nea.gov.cn, and ends with the questions to ask a provincial rule.

Layer 1: what the market rules say capacity and ancillary services are

NDRC Order No. 20 (2024) lists three transaction types — energy, ancillary services and capacity — and defines ancillary-service trading as market-based provision of paid services such as frequency regulation, reserve and peak regulation. It defines the object of capacity trading as the output capability of generating units, storage and others that can reliably support maximum load over a future period, and says China will gradually build a market-based capacity cost-recovery mechanism, exploring capacity compensation and capacity markets. Note the verbs: ancillary services are traded; capacity is explored. The Order also splits ancillary services into basic services that operators must provide without pay and paid services beyond them, with providers of paid services chosen by market competition where conditions allow.

Layer 2: ancillary services — three documents, read in order

The 2021 Measures (what counts and who pays). The NEA's Ancillary Services Management Measures (21 December 2021) define ancillary services as services provided — beyond normal production, transmission and use of electricity — by generation-side entities, new-type storage and adjustable loads that can respond to dispatch instructions, within the jurisdiction of provincial and higher dispatch bodies. They classify services into active-power balancing (frequency regulation, peak regulation, reserve, rotational inertia, ramping), reactive-power balancing (voltage control) and emergency/restoration services (stability generator tripping, stability load shedding, black start). Basic services are an unpaid obligation; paid services may be compensated at fixed rates or through market methods (centralised bidding, tender/listing/auction, bilateral negotiation), and during spot-market operation no peak-regulation product parallel to the spot market should in principle be kept where the energy-market mechanism already fully delivers the system peak-regulation function. Compensation for services that serve the whole system is allocated to all grid-connected entities (generators and market-based users, with non-market users brought in gradually); services for specific generators or users are, in principle, paid by those parties; and users' bills must list ancillary-service charges separately.

Document 196 (the price caps). Document 196 (7 February 2024, effective 1 March 2024) says that where the spot market runs continuously, spot price limits should be relaxed to deliver peak regulation and peak-regulation, peak-capacity and similar markets should stop; where the spot market does not run continuously, wind and PV units are in principle not peak-regulation providers; and the peak-regulation price cap should in principle not exceed the local grid-parity new-energy tariff. Frequency-regulation markets should in principle be single-part and mileage-based: fees equal clearing price × regulation mileage × performance factor; the performance factor is built from ramp rate, accuracy and response time benchmarked to the best local coal unit (excluding coal-plus-storage); and in principle the performance factor may not exceed 2 and the mileage clearing-price cap may not exceed 0.015 yuan per kW. Reserve markets should in principle be single-part on awarded capacity and time (fee = clearing price × awarded capacity × awarded time, settled on actual capacity if lower), capped in principle at the local energy-market price cap; and ancillary-service cost totals or prices may not be set by adjusting settlement formulas after the fact.

The 2025 Basic Rules (the national template). The Basic Rules for the Ancillary Services Market (3 April 2025) define ancillary services as peak regulation, frequency regulation, reserve and ramping provided by adjustable resources, apply to provincial and higher markets, and run for five years from publication. Generators, retailers, users and new-type operators — including storage companies, virtual power plants, smart microgrids and vehicle-grid-interaction operators — are eligible participants; providers must be observable, measurable, adjustable and controllable; and entities receiving capacity payments should in principle bid into the ancillary-services market. The dispatch body is the single buyer: it states the system's needs, procures all services, organises trading, clears the market, calls services and computes fees; the trading centre handles registration, disclosure and settlement bases.

The Rules define the products: peak regulation (adjusting generation or consumption, including start/stop, to track load and renewable swings), frequency regulation (mainly secondary regulation via AGC/APC), reserve (holding back capability to adjust active output within a set time) and ramping (fast output changes to meet short, large net-load swings). They set the fee bases per product — peak regulation on clearing price and awarded/actual output or start-stop count; frequency regulation on mileage, performance factor and clearing price; reserve and ramping on awarded capacity, time and clearing price — with energy delivered while providing services settled under energy-market rules.

Who pays is the clause investors most often miss. Where the spot market does not run continuously, ancillary costs are in principle not passed to users; where it runs continuously, qualifying frequency-regulation and reserve costs are in principle shared between user consumption and grid-exported energy that did not trade in the energy market, in a ratio set by the provincial price authority; independent storage and VPPs share costs by exported (or imported) energy in each settlement period. Frequency-regulation, reserve and ramping markets may clear independently of the spot market, moving to joint clearing when conditions allow; regional peak-regulation and regional reserve trades involving energy exchange should be converted to energy trades; settlement is in principle daily clearing and monthly settlement with each product listed separately on the bill.

The NEA's April 2025 Q&A gives the context: ancillary services went through three stages (unpaid before 2006, planned compensation 2006–2014, partial marketisation since 2014); at the time 16 provinces had peak-regulation markets, 15 frequency-regulation markets, 2 ramping markets and 6 regions had regional markets; and the Rules (12 chapters, 67 articles), together with the medium/long-term and spot basic rules, mark the top-level design of the three main trading products as basically established.

Layer 3: capacity — two administered prices in the documents covered

Coal. Document 1501 (8 November 2023, in force from 1 January 2024) applies to compliant, operating public coal units — captive coal plants, units outside national plans and units failing national energy-use, environmental or flexibility requirements are excluded — and converts the single energy price into a two-part tariff: the energy price is formed by the market, while the capacity price recovers a share of a nationally uniform fixed cost of 330 yuan per kW per year — around 30% in most places in 2024–2025 (about 50% where coal's role has shifted faster) and not less than 50% from 2026. A unit's capacity payment is the local capacity price times its declared maximum output, declared and settled monthly; the cost goes into system operating costs and is allocated to industrial and commercial users each month in proportion to consumption. Performance penalties apply: in normal operation, a unit that cannot deliver its declared maximum output on dispatch instruction loses 10% of that month's capacity payment if this happens twice within the month, 50% for three times and 100% for four or more times within the month; three full-month deductions in a calendar year cancel eligibility. Regions with a continuously running spot market may study a generation-side capacity price mechanism suited to their market, after which in-province coal units leave the notice's mechanism; regions with peak-regulation compensation must re-evaluate and adjust those payments once the capacity price starts.

Pumped storage. Document 633 (30 April 2021) keeps a two-part tariff: the energy price, formed competitively, reflects peak-regulation value and recovers pumping/generating operating costs; the government-approved capacity price reflects frequency regulation, voltage regulation, reserve and black-start value, is paid by the grid company and recovered through provincial transmission-and-distribution tariffs. Stations are encouraged to take part in ancillary markets or compensation mechanisms, and the resulting gains are shared: of the corresponding gains formed in the previous regulatory period, and the gains formed from pumping and export tariffs, 20% is shared by the station and 80% is deducted when the next period's capacity price is set; losses stay with the station.

Reading a provincial rule: six questions

Two readings follow. First, a revenue line built on a provincial compensation rule that predates Document 196 should be re-checked against its caps and against whether the spot market now runs continuously, because the Rules require provinces to align their implementation rules with the national template. Second, an asset receiving a capacity payment is expected to show up in the ancillary market, not to sit idle on the capacity fee.

Scope limits

No provincial implementation rule, cap value, market volume or project revenue is quoted. The provincial coal capacity-price table attached to Document 1501 was not downloaded. No document creating a capacity price specifically for new-type storage is cited; Order No. 20 only "explores" capacity compensation and capacity markets. The 2021 Measures were read from the NEA's .doc attachment, whose article numbers do not survive text extraction, so locators cite chapters and paragraphs.