A recent document has ignited intense discussion over the potential phasing out of government-mandated time-of-use (TOU) electricity pricing for certain participants, marking a critical step in deepening China's power market reforms.

The notice, released by the National Development and Reform Commission, stipulates that electricity users participating directly in market transactions will, in principle, no longer follow government-set TOU rates. This has been interpreted by some as a move toward cancelling TOU pricing and a major shift for commercial and industrial energy storage, sparking fierce debate over its precise scope of application.

The policy requires improving segmented, curve-based electricity contracting mechanisms for 2026. This means medium- and long-term deals must specify volumes and prices for different periods, linking user-side pricing more closely to spot market outcomes rather than administrative peak and off-peak prices.

The adjustment is poised to reshape China's power market landscape. On one hand, segmented contracts can transmit more accurate price signals and create opportunities for flexible resources like energy storage. On the other hand, linking retail prices to the spot market will reconfigure the profit models for commercial and industrial energy storage. The traditional arbitrage model, charging during low-price periods and discharging during high-price periods, may become unsustainable, especially in regions with small spot price differentials or insufficient demand for flexibility.

Regional implementation of this policy varies. Shaanxi has adopted a radical approach, explicitly stating that in 2026, market-based users will no longer follow peak/off-peak floating pricing. Instead, prices for users represented by power retail companies will be formed based on wholesale market averages, with the lowest prices expected during midday hours of high solar output.

In contrast, Sichuan has taken a more cautious path. Its draft 2026 power market trading plan optimizes but retains the existing TOU policy for retail users' non-spot-linked electricity usage. Officials stressed the region's vast differences between wet and dry season hydropower pricing, an immature electricity spot market, and the need to avoid market fluctuations.

The core controversy lies in the policy's applicability. A radical view interprets "users participating directly in market transactions" as encompassing all retail users, suggesting Shaanxi's model experiences the first materialization.

A more cautious interpretation, however, argues this term typically refers only to large users directly engaged in wholesale markets, not small and medium-sized commercial users represented by retail companies.

Deputy Director Cai Yuanji of Sichuan Energy Internet Research Institute, Tsinghua University (SC-EIRI), pointed out that in Shaanxi, while retail companies' wholesale purchasing prices dropped from 0.362 yuan/kWh in January to 0.339 yuan/kWh in June, the average retail price for end users only fell by 0.003 yuan/kWh, leaving a significant margin. If TOU pricing is removed, retail companies must improve their power trading capabilities or adopt flexible pricing with users to sustain profits, which raises the bar for market forecasting and trading skills, especially for small and medium-sized retailers.

The impact on the energy storage industry is immediate and profound. Representative of Trina Energy Storage Solutions (Jiangsu) Co., Ltd. noted that the change complicates the setting of usage rules for commercial storage. Companies must evolve from a passive arbitrage model reliant on fixed price spreads to an active operational model that creates diversified value through technological and management capabilities. This involves high-frequency charge/discharge strategies, increased power rates, or participation in power market trading via partnerships with retail companies.

With predictable returns declining, storage firms must either enhance their own trading expertise or collaborate with specialized retail companies. Firms should shift focus from asset-heavy construction to operation-heavy services and explore diverse applications like zero-carbon parks and virtual power plants.

Ultimately, the debate over TOU pricing reflects the inevitable extension of power market reform from the generation side to the user side. As Cai likened the process to the "price reform" of the 1980s, the pricing mechanism is transitioning from government-led to market-oriented, but significant price volatility is not expected.

As of December 2025, 28 provinces (excluding Xizang) now continuously conduct spot power trades, seven of which have moved to formal operations. The phasing-out of administrative TOU pricing appears a general trend as the user side fully enters the power market. However, the follow-up must balance market acceptance, regional resource disparities, and regulatory capabilities.