How to Read China's Power Capacity Compensation Mechanism: From the 2023 Coal Capacity Price to the 2026 Notice on Gas, Pumped Storage, Grid-Side Storage and Reliable-Capacity Compensation

Short answer. China pays for capacity in two layers. The first is a set of administered capacity prices by technology: coal power since January 2024, pumped storage, and — from the January 2026 notice — gas power and grid-side independent new-type storage at provincial option. The second, to be built once a province's spot market runs continuously, is a reliable-capacity compensation mechanism that pays every eligible unit for its reliable capacity on one principle, regardless of technology, and replaces the technology-specific prices for those units. This guide reads the national texts in order: the 2024 market rules, the 2023 coal notice and its Q&A, the 2025 spot-market guideline, and 发改价格〔2026〕114号 with its Q&A. Provincial standards are not covered.

1. Where capacity sits in the market rules

The Basic Rules for Electricity Market Operation (NDRC Order No. 20, 2024) list capacity trading among the market types alongside energy and ancillary-service trading. They define its object as the output capability of generators, storage and others that can reliably support maximum load over a future period, and call for gradually building a market-based capacity cost-recovery mechanism, exploring capacity compensation and capacity markets to guide investment and keep long-term capacity adequate. Everything below is the administrative route to that goal.

2. The coal capacity price (2023)

发改价格〔2023〕1501号 (8 November 2023, in force from 1 January 2024) set the coal-power capacity price as a share of a nationally uniform fixed cost of 330 元/kW·yr: about 30% in most places for 2024–2025, about 50% where coal power's role had shifted faster, and at least 50% everywhere from 2026. The fee is based on the unit's declared maximum output and settled monthly, and the total goes into system operation fees shared by industrial and commercial users in proportion to monthly consumption. A unit in normal operation that cannot deliver its declared maximum output on dispatch instruction (for cross-provincial exports, as the contract provides) loses 10% of the month's capacity fee after two occurrences in a month, 50% after three and 100% after four or more; a unit whose monthly fee is fully deducted three times in a calendar year loses eligibility.

In the NDRC's Q&A, the official said the mechanism applies to compliant public coal units in operation — not captive plants, units outside national plans, or units failing energy, environmental and flexibility requirements — that "about 30%" of fixed cost means 100 元/kW·yr and the at-least-50% floor from 2026 means 165 元/kW·yr, and that residential and agricultural users are not affected. CNWattHub arithmetic on the 330 元/kW·yr base: 330 × 30% = 99 and 330 × 50% = 165 元/kW·yr; the Q&A itself states 100 元 for "about 30%", and 165 元 corresponds to the 50% floor, which provinces may exceed.

3. The idea of reliable capacity (2025)

The September 2025 guideline for regions with continuous spot markets (发改能源〔2025〕1171号) has a section on studying a reliable-capacity compensation mechanism. It proposes a capacity assessment that sets capacity coefficients for each unit type and for new-type storage from output characteristics, auxiliary consumption and maintenance outages, so as to reflect each unit's actual contribution to adequacy, and a compensation mechanism for all source types set by provincial price authorities on the principle of basically recovering the marginal unit's fixed cost after energy and ancillary-service revenue, considering planning, supply-demand and user affordability. CNWattHub editorial method: the capacity coefficient is the device that lets a 2-hour battery, a gas turbine and a coal unit be paid on one scale; the 2026 notice gives the storage version of it a formula (section 4).

4. What the 2026 notice does

发改价格〔2026〕114号 (27 January 2026) sets the overall approach: improve capacity price mechanisms separately for coal, gas, pumped storage and new-type storage, and, once the spot market runs continuously, build a generation-side reliable-capacity compensation mechanism that compensates units' reliable capacity by peak capability on uniform principles.

Coal and gas. The coal capacity price is raised to recover at least 50% of fixed cost under Document 1501, and provinces may go higher according to local market development and coal utilisation hours; provincial price authorities may set a gas-power capacity price that recovers a share of gas units' fixed cost.

Grid-side independent storage. Provinces may pay a capacity price to grid-side independent new-type storage that serves system security and has not taken part in paired-storage arrangements (未参与配储). The price starts from the local coal capacity price scaled by a peak-capability ratio equal to the station's full-power continuous discharge duration divided by the longest annual net-load peak duration, capped at 1, and considers market progress and system need; such stations are managed by lists drawn up by provincial energy and price authorities under NEA requirements. CNWattHub arithmetic, hypothetical: if a province's coal capacity price were 165 元/kW·yr and its longest net-load peak lasted 4 hours, a 2-hour station's ratio would be 0.5 and its scaled base value 82.5 元/kW·yr, while a 4-hour station's ratio would be 1 and its scaled base value 165 元/kW·yr; the notice then has the province consider market progress and system need in setting the actual price, so these are reference values, not caps.

Reliable-capacity compensation. Reliable capacity is the capacity a unit can supply continuously and stably during the system's annual peak periods. After continuous spot operation, provincial price authorities set up compensation on uniform principles; the standard is based on the fixed cost the market's marginal unit cannot recover from the energy and ancillary-service markets, adjusted for supply-demand, affordability and market progress. Regions with a high share of new-energy installed capacity and large reliable-capacity needs should move faster, and qualifying regions may form capacity prices through capacity markets under national guidance. The scope may include coal, gas and qualifying grid-side storage that participate in the local market, extending gradually to pumped storage; there is no double compensation and none for government-priced units; once compensation is established, the previous capacity prices for those units cease.

Pumped storage. The notice also distinguishes pumped-storage stations by whether construction started before or after Document 633 (April 2021), with the start defined by having obtained the water-abstraction, temporary land-use and EIA approval documents: pre-633 stations keep government-set capacity prices; for post-633 stations the provincial price authority sets, every three to five years, a unified capacity price for stations of the same period newly started on the provincial grid, reduced for stations whose full-power generation duration is under six hours, and the stations participate in the market with gains shared. The details are in the companion guide on pumped storage pricing.

Market and settlement changes. Provinces may adjust the floor of in-province coal medium- and long-term prices and, provided power and energy balance is assured, relax coal contract-ratio requirements; they must not force fixed prices, and may require a share of annual contract volume at flexible prices reflecting real-time supply and demand; capacity fees and compensation go into local system operation fees; units failing assessment have fees or compensation deducted under provincial rules.

5. How the regulators explain it

In the January 2026 Q&A, the NDRC and NEA officials described the capacity price as a "basic wage" (保底工资) for regulating sources. They listed the problems addressed: falling coal utilisation hours weakening the current price's protection, weak cost discipline on pumped storage, and inconsistent provincial gas and storage mechanisms. They called reliable capacity a common "yardstick" (标尺) so that capacity prices no longer differ by unit type, said the coal medium- and long-term floor would no longer uniformly be 20% below the benchmark, and said residential and agricultural tariffs are unaffected while the effect on industrial and commercial purchase costs is small because higher capacity recovery is offset by lower energy-market recovery. They also said the notice for the first time establishes at national level a capacity price for grid-side independent new-type storage, after a 14th Five-Year period in which the state set up coal and pumped-storage mechanisms and some provinces explored gas and storage mechanisms.

Reading table

Checklist

CNWattHub editorial method, not a sourced rule:

1. Identify the technology and whether the unit participates in the local market; government-priced units get no reliable-capacity compensation.
2. For coal, check the province's recovery share (at least 50% from 2026, possibly higher) and the unit's deduction history.
3. For storage, confirm the station is on the provincial grid-side list, its full-power discharge duration and the province's longest net-load peak duration.
4. Ask whether the province's spot market runs continuously, which is the trigger for reliable-capacity compensation.
5. Model the switch: when compensation starts, the technology-specific capacity price stops for units in the scheme.

Scope limits

National texts and two regulator Q&As only. No provincial capacity price or compensation standard is quoted, the 1501 annex table of provincial coal prices was not read, and the storage example is hypothetical arithmetic on the notice's formula. Not legal, regulatory or investment advice.