Evaluation Framework for the Impact of Provincial Mechanism Electricity Price Differences on Investment and Profitability

1. Structural Logic of Mechanism Electricity Price Differences
   • Current typical provinces (Jiangsu, Shanghai, Zhejiang, Guangdong, Anhui, Guangxi, etc.) have mechanism electricity prices ranging from 0.32 to 0.42 CNY/kWh, mainly determined by regional power generation costs (fuel, environmental protection, operation and maintenance), non-technical costs (land price, labor, grid loss) and local supply-demand tension. Eastern coastal provinces have higher peak-valley price differences and overall levels due to dense load, environmental constraints and higher non-technical costs; central provinces have medium to high prices due to limited newly commissioned resources and high development thresholds; southwest regions have relatively low electricity prices due to advantages such as hydropower, low coal consumption and local subsidies. This differentiation requires power enterprises to balance cost differences and price levels in inter-provincial layout.

2. Impact on Investment Layout
   • Regional Resource Allocation
     : The advancement of spot markets (such as the southern region’s “day-ahead + real-time” dual-track settlement, where peak prices in Hangzhou and Ningbo are 15%-20% higher than surrounding areas) makes price signals more sensitive, guiding power generation assets to move closer to load centers. At the same time, cross-regional spot settlement is conducive to the output of low-price hydropower/wind power resources to high-price areas, forcing enterprises to establish flexible scheduling capabilities such as peak shaving, energy storage, and virtual power plants in high-price areas to balance the profitability and operational pressure brought by high prices. [0]
   • Development Rhythm and Capital Preference
     : High electricity price areas attract high-efficiency coal-fired, gas-fired, nuclear power and energy storage projects, but need to bear higher construction costs and environmental approval; medium and low electricity price areas form thresholds for high capital expenditure projects, and are more suitable for new energy projects with low marginal costs and long capital return cycles such as wind, solar and biomass. Enterprises should combine provincial price mechanisms and local approval policies, prioritize the layout of renewable energy plus energy storage combinations in grid-parity areas, and use cross-regional transactions to earn price differences.
   • Market-oriented Resource Competition
     : With the deepening of mechanism electricity prices and spot settlement (the southern region’s spot trading has achieved full-process closed-loop), power enterprises with strong scheduling capabilities and flexible packages (such as Zhejiang’s “take the lower value between contract price and provincial average price”) will form differentiated competitive advantages between enterprises and large users, promoting investment in differentiated pricing services for commercial/industrial user-side pricing.

3. Impact on Profitability
   • Profit Improvement but Volatility Increase in High-Price Areas
     : In coastal areas with high electricity prices, the price difference during peak hours is significant, which is conducive to assets with energy storage or peak shaving capabilities to tap high-price benefits. However, if cost control is not in place or environmental compliance is not met, profit volatility will increase. It is necessary to lock in returns through long-term contracts with users (for example, suppliers provide a “take the lower value between contract price and provincial average price” mechanism to reduce volatility).
   • Profit in Low-Price Areas Relies on Scale and External Transmission
     : The profitability of southwest low-price regions mainly depends on large-scale transmission and green power external transmission capabilities, facing the pressure of insufficient price leverage. Therefore, it is necessary to use cross-regional spot transactions to achieve price difference benefits (such as Yunnan hydropower and Guangdong wind power can quote on a unified platform and output to high-price regions through spot settlement), and obtain additional benefits through green power certificates and long-term power purchase agreements (PPA).
   • Cost and Efficiency Improvement
     : Spot prices reflect supply and demand in real time, encouraging power generation enterprises to optimize fuel mix and unit operation (such as peak real-time quotes stimulating unit peak output). If fuel costs and maintenance costs can be effectively managed, relative advantages can be gained in price fluctuations.

4. Investment Strategy Suggestions
   • Regional Portfolio Allocation
     : It is recommended that large power generation and integrated energy enterprises maintain peak shaving and energy storage assets in high-end load areas in the east, layout new energy projects with fast approval and medium electricity prices in the central region, and expand green power installed capacity in the southwest and output through cross-regional channels.
   • Strengthen Price Risk Management
     : Hedging mechanisms, long-term PPA, virtual power plants and spot arbitrage capabilities are the keys to ensuring returns in high-price regions; low-price regions need to improve unit returns through capacity mechanisms or green power premiums.
   • Utilize Policy and Market-oriented Tools
     : Actively participate in provincial spot settlement reforms (such as “15-minute dynamic price adjustment” and “node marginal price”) and establish a data-driven scheduling and quotation system to achieve dual profitability of “price difference benefits + load response”.

5. Profit Monitoring and Risk Prevention
   • It is recommended to establish multi-region price monitoring indicators (such as peak-valley price difference, monthly average spot price, non-technical cost ratio), and combine cold and hot season scheduling analysis to optimize the rhythm of asset commissioning.
   • For enterprises highly dependent on cross-regional transactions, it is necessary to pay attention to transmission channel capacity, settlement timeliness and policy price adjustment risks to prevent cross-regional revenue compression due to lack of infrastructure or regulatory adjustments.

: The differences in provincial electricity price mechanisms are both challenges and opportunities for optimal allocation. If we can grasp the flexible scheduling advantages in high-price areas, the large-scale clean resources in low-price areas, and the price difference benefits brought by cross-regional spot settlement, and strengthen the systematic management of price, cost and policy risks, we can achieve a stable multi-provincial investment layout and sustainable profitability. It is recommended to combine in-depth investment research models to further obtain data such as provincial spot price ranges, transmission and distribution costs, and load curves to make more detailed county-level layout decisions.

[0] People’s Daily - “Cross-provincial and cross-regional electricity spot settlement moves towards national integration” (https://paper.people.com.cn/zgcsb/pc/content/202511/17/content_30115287.html)