A new landscape for DGPV investment in China: Thriving amidst changing time-of-use electricity tariffs
China's evolving Time-of-Use (TOU) electricity tariffs are reshaping the economics of distributed generation photovoltaic (DGPV) investments. Recent regulatory updates in provinces like Shandong and Hubei have altered TOU pricing, impacting the financial metrics of solar projects
The changes align with China's goal to balance increasing renewable energy generation penetration with new loads (such as EV) and optimise grid stability. Therefore, TOU tariffs include peak-valley pricing and seasonal pricing mechanisms. Peak-valley pricing divides each day into peak, shoulder, and off-peak time windows, while seasonal pricing adjusts time windows by seasonal load variations. Driven by the development of spot markets, TOU pricing has started dynamic adjustment in some provinces.
To help investors and market participant quantify the effect of these changes AFRY applied the BID3 model to analyse Shandong’s adjusted TOU pricing structure by simulating their impact combined with solar generation growth on electricity prices.
Price forecasting and TOU adjustment impacts modelling
Shandong has adjusted its TOU windows and indices multiple times since 2019 based on spot market price signals.
The fundamental optimisation of BID3 for the market generated hourly price curves, closely matched recent TOU policy changes in Shandong, reproducing noon prices drop significantly due to reclassification of noon hours from shoulder to valley periods.
BID3’s simulations identified the spot market’s increasing peak-to-valley price differential, reaching up to 20 times on some days.
Challenges and opportunities
Understanding retail tariff outlook and price risks is key, along with portfolio optimisation. Market screening for future investment opportunities is also important. Uncertainty in future TOU regulations may still occur with further adjustments in TOU pricing are likely, making dynamic price forecasting essential for investors. AFRY’s consultants and BID3 users have access to the high-quality BID3’s China dataset and modelling solution tool to model future TOU changes and assess risks of fluctuating prices confidently.
