How to Read a Power Purchase Agreement for Industrial Users in China: Market Entry and Agency Purchasing, the Price Build-Up and Fourth-Period T&D Tariffs, Retail Contracts and Packages, Multi-Year Green Power Contracts, and Green Direct Connection

Short answer. The national texts reviewed here describe several routes by which an industrial user in China buys electricity. All industrial and commercial users are meant to buy at market prices — directly in the wholesale market or through a retailer — and those not yet in the market are served by grid-company agency purchasing. A user who has traded in the market and switches to agency purchasing is charged 1.5 times the agency purchase price. For a grid-supplied industrial or commercial user, the energy price is only one part of the bill: line losses, the regulated T&D price, system operation charges and government funds sit on top. Green power can be contracted for several years, with the energy price and the green-certificate price stated separately, and since 2025 a plant on a dedicated line can supply a single user under a multi-year agreement. This guide shows where each term comes from.

1. The routes

CNWattHub reading: the national texts give an industrial buyer five routes — direct wholesale contracts, a retail contract with a retailer, grid-company agency purchasing, green power trading (direct or through a retailer) and green direct connection. The sections below cite each.

Market entry. NDRC's 2021 coal-power pricing reform requires all industrial and commercial users to buy at market prices, abolishes catalogue sales prices for them and requires users at 10 kV and above to enter the market; users not yet buying directly are served by agency purchasing. It widens the coal-power market price band to, in principle, ±20%; energy-intensive users' market prices are not bound by the 20% upward cap, and spot prices are not bound by the band.

Agency purchasing. As issued in 2021 (809号, provisionally valid to the end of 2022; no later text on its validity was read), the agency user's price is the agency purchase price plus the T&D price plus government funds, published monthly at least 3 days ahead. An agency user may switch to direct purchasing from the next quarter if it chooses before the last 15 days of the current quarter. Users who left the market without good reason, users with coal-fired captive plants and energy-intensive users on agency purchasing pay 1.5 times the agency purchase price.

Retail contracts. Buying through retailers has become the main market route for small and medium users: at the end of 2025 there were 5,288 registered retailers representing more than 700,000 users, and retail volume was about 60% of market-traded volume. Once a retail relationship is confirmed on the trading platform, the user is treated as no longer buying from the grid company, although the supply relationship continues and a three-party settlement supplement is signed.

2. The price build-up

Under the third regulatory-period notice of 2023, an industrial or commercial user's price consists of the on-grid (energy) price, grid-side line-loss charges, the T&D price, system operation charges (including ancillary-service costs and pumped-storage capacity charges) and government funds and surcharges. Users of 100 kVA and below pay a single-part tariff, users between 100 and 315 kVA may choose, and users of 315 kVA and above pay a two-part tariff, except that users of that size already on a single-part tariff may choose either; demand-charged users consuming at least 260 kWh per kVA per month pay 90% of the demand charge.

NDRC's fourth regulatory-period T&D prices apply from 1 August 2026. Jiangsu's table is an example.

The table's prices include VAT, regional grid capacity charges and base-period cross-subsidies, and grid-side line losses are charged separately at an in-province rate of 2.83%.

CNWattHub arithmetic (hypothetical, T&D only): at 35 kV the two-part energy price is 0.1881 − 0.1048 = 0.0833 yuan/kWh below the single-part price, so a demand charge of 48.0 yuan/kW·month is recovered once monthly consumption exceeds about 48.0 / 0.0833 ≈ 576 kWh per kW of billed demand (about 80% load factor in a 720-hour month). Run the same test with your own load profile and voltage level; energy, losses, system operation charges and funds are additional.

3. Retail contracts: what a package contains

This guide does not quote a standard retail contract template. NEA said in January 2026 that it would revise the retailer measures, study basic rules for the retail market and push retailers from 'price-spread arbitrage' to value-added services. Shandong's July 2025 consultation draft shows one province's design.

• Retail trading runs by year and month, through standardised packages or bilateral negotiation.
• A package comprises a price mechanism, baseline curve, deviation-handling mechanism, code, term, termination clause and applicable users.
• Each retailer must publish at least two package types, including at least one price-linked package.
• Package types: fixed time-of-use; market-rate (a spot reference price plus a fixed price); hybrid (a fixed-TOU share of 1–99%, the rest market-rate); price-linked; and green, which adds a green environmental-value premium to the energy price.

Counterparty risk. A retailer that does not trade for 12 consecutive months has its trading qualification suspended, and one with no retail business anywhere for 3 years enters forced exit. If a retailer is forced out, its unperformed contracts are first renegotiated, then transferred or auctioned; if that fails the contracts terminate and retail users may sign with another retailer, otherwise a last-resort retailer takes them at 1.5 times the agency price in medium- and long-term mode, or in spot operation at a time-of-use price set by local authorities that in principle is not below twice the average spot price. CNWattHub reading: the last-resort price is the real downside of a retailer failing, so read the retailer's guarantee and exit terms as carefully as the price.

4. Green power and multi-year contracts

The 2025 Basic Rules for the Medium- and Long-Term Market (in force from 1 March 2026 for five years) promote a multi-year power purchase agreement mechanism. They define green power trading as trading electricity together with its environmental value, accompanied by state-issued green certificates (GECs); require one-to-one correspondence between generator and user so the environmental value is traceable; encourage multi-year green power trading; require retailers to link all green demand to the users they represent; settle energy and environmental value separately; and exclude volumes under the sustainable-development price settlement mechanism from also earning GEC revenue.

The 2025 new-energy pricing reform lets buyers and sellers set contract volumes, prices and curves to suit renewable output and adjust them, requires green power bids and prices to state the energy price and the GEC price separately, and encourages renewable generators and users to sign multi-year power purchase agreements. Shandong's draft organises green power trading from yearly (multi-year) to within-month periods, mainly by bilateral negotiation and listing, and requires every medium- and long-term contract to specify at least the trading unit, period, volume, decomposition curve, price and settlement reference point — with the GEC price added for green contracts.

5. Green direct connection

A 2025 notice allows wind, solar or biomass plants to supply a single user over a dedicated line without connecting directly to the public grid. Where the plant and the load have different investors, they must sign a multi-year power purchase agreement or an energy-performance contract. A grid-connected direct-connection project's annual self-consumed renewable output must be at least 60% of its available generation and at least 30% of its total consumption (at least 35% before 2030), and the grid-export share, set by each province, is generally not above 20%; where the spot market does not run continuously, the project may not export to the public grid at all. The load may not use agency purchasing, and the project still pays T&D, system operation charges, policy cross-subsidies and government funds as set by State Council pricing and finance rules. CNWattHub reading: this route combines physical supply over a dedicated line with a multi-year power purchase agreement or an energy-performance contract where investors differ, and its fee clause means it is not a way around those charges.

Reading table

Checklist

CNWattHub editorial method, not a sourced rule:

1. Confirm which route the offer uses (direct, retail, agency, green power trading or direct connection) and whether you are classed as energy-intensive.
2. Break the quoted price into energy, line losses, T&D (by voltage level and single- or two-part tariff), system operation charges and funds, and check which the counterparty includes.
3. Where your capacity gives you a choice (between 100 and 315 kVA, or 315 kVA and above if already on a single-part tariff), choose single- or two-part T&D using your own load factor; recompute when tariffs change.
4. For retail contracts, read the price mechanism, baseline curve, deviation handling, term and termination clause, and the retailer's guarantee and exit history.
5. For green power, require separate energy and GEC prices, one-to-one traceability and a multi-year term if you need price stability.
6. For a grid-connected direct-connection project, test the annual self-consumption floors (self-consumed renewable output at least 60% of available generation and at least 30% of total consumption, at least 35% before 2030) against your load and budget for the T&D, system-operation charges, cross-subsidies and funds the notice requires.

Scope limits

National notices and rules, one NEA press-conference answer, NDRC tariff notices and one province's consultation draft only. No energy price, agency purchase price, GEC price or retail package price is quoted; 809号 is quoted as issued and Shandong's rules are a draft. Not legal, tariff or investment advice.