<h3>1. China's Electricity Market, Discussion Focus Has Changed</h3>
Looking at the Chinese electricity market today, the focus is no longer on whether to marketize, but on how deep the marketization can go. The National Energy Administration disclosed that by 2025, the national electricity market transaction volume will reach 6.6394 trillion kilowatt-hours, accounting for 64.0% of the total electricity consumption; inter-provincial and inter-regional transaction volume will reach 1.5921 trillion kilowatt-hours; green electricity transaction volume will reach 328.5 billion kilowatt-hours, a year-on-year increase of 38.3%, with long-term green electricity agreements reaching a transaction volume of 60 billion kilowatt-hours. Market-based transactions have entered the main framework of systematic operation.
More notably, the power structure is also rewriting market logic. By the end of 2025, the national installed capacity of renewable energy will reach 2.34 billion kilowatts, accounting for about 60% of the total installed capacity; wind and solar combined will reach 1.84 billion kilowatts, accounting for 47%, historically surpassing thermal power. The underlying conditions for the operation of the Chinese electricity market have changed, and the transactions are facing not marginal new energy but the system fluctuations after a high proportion of new energy enters the main stage.
The policy direction is also very clear. The implementation opinions on improving the national unified electricity market system issued in 2026 require continuous improvement of the medium- and long-term market that ensures the safe and stable supply of electricity, promoting continuous opening and uninterrupted trading of the medium- and long-term market, and clarifying the operating entities participating in the spot market transactions. The signing and performance ratio of medium- and long-term contracts must meet the national energy security supply requirements. For the Chinese market, the next stage of issues to be addressed has shifted from opening up transactions to how to handle price fluctuations, system balance, resource adjustment, and revenue distribution.
<h3>2. The True Maturity of the U.S. Market Lies in Risk Management</h3>
The most noteworthy aspect of the U.S. electricity market is not just the spot market, but the entire risk management system that has gradually developed around the spot market. FERC's Energy Markets Primer lists financial contracts, hedging, and risk transfer as important components of the energy market. In mature wholesale markets, electricity, capacity, ancillary services, demand response, financial transmission rights, and over-the-counter hedging collectively undertake the functions of price discovery and risk allocation.
The depth of this system can be directly seen from the trading scale. ICE disclosed that by 2025, the transaction volume of its U.S. electricity market will reach 7.8 trillion kilowatt-hours, setting a historical record with a year-on-year increase of over 30%. Nodal Exchange disclosed that by 2025, the electricity futures transaction volume will reach 3.1 trillion kilowatt-hours, with an end-of-year open interest of 1.51 trillion kilowatt-hours, corresponding to a bilateral nominal value of over 166 billion USD; by early 2026, the open interest will still maintain at about 1.5 trillion kilowatt-hours. The focus of the U.S. electricity market has long surpassed the physical electricity itself.
When these figures are viewed alongside actual electricity consumption in the U.S., the significance of financialization becomes very intuitive. Reuters cited data from the U.S. Energy Information Administration stating that the total electricity consumption in the U.S. will reach 4.195 trillion kilowatt-hours in 2025, and is expected to rise to 4.244 trillion kilowatt-hours in 2026
Only the disclosed trading volume of electricity derivatives in the U.S. for 2025 from ICE and Nodal has reached 10.9 trillion kilowatt-hours, approximately 2.6 times the forecasted total electricity consumption in the U.S. for 2026. The reason for the amplified trading volume is not because electricity is consumed multiple times, but because the same physical risk is priced, transferred, and managed in multiple rounds.
The U.S. market continues to refine its products. Nodal is launching daily power futures in 2026, advancing towards shorter cycles and finer granularity in risk management. Demand response is also deepening simultaneously. The FERC 2025 annual assessment shows that demand response resources in the seven major wholesale markets in the U.S. have reached 33,272 MW, accounting for about 6.5% of the non-coincident peak load in these markets. The development direction of mature markets is clear; the trading objects will increasingly extend from electricity quantity to the risk itself.
<h3>III. China Will Not Follow the Same Path as the U.S.</h3>
China will certainly move towards stronger price signals, higher trading frequency, and richer risk management tools, but the path will not replicate the U.S. The reason is not that China's development is slow, but that the systemic constraints faced by China from the beginning are more complex.
First, let's look at the system scale. By 2025, the cross-provincial and cross-regional trading volume in China will reach 15.921 trillion kilowatt-hours, setting a historical record. The southern regional electricity market has smoothly transitioned into a continuous settlement trial operation phase, and by 2025, the trading scale in the Southern Grid operating area will exceed 12 trillion kilowatt-hours, accounting for over 67% of the total electricity consumption. China's trading system is inherently embedded in a super-large-scale resource allocation network, with greater emphasis on cross-regional electricity delivery, regional rule coordination, system security constraints, and spatiotemporal mismatches.
Next, consider the power source structure. China is deepening its market under the premise of having 1.84 billion kilowatts of installed wind and solar capacity, with renewable energy accounting for 60% of the total. When many market mechanisms in the U.S. were formed, the proportion of volatile resources in the system was far lower than that of today's China. China is facing a more advanced issue, where a high proportion of new energy has already entered the core position of the system, and price formation, balancing responsibilities, resource adjustment, and settlement mechanisms must quickly catch up.
The load structure is also different. The recent increase in electricity demand in the U.S. is increasingly driven by new types of loads such as data centers; China, on the other hand, is simultaneously bearing the combined constraints of manufacturing loads, industrial park loads, electrification loads, new energy fluctuations, and cross-provincial optimization. Many flexible resources in the U.S. market come from commercial buildings and residential responses, while China is more likely to form its own trading structure around industrial load management, park optimization, energy storage collaboration, green electricity direct connection, and cross-provincial electricity purchases.
There is also a very practical difference. China's trading volume today is already substantial, but structurally, medium- and long-term trading still dominates. The National Energy Administration disclosed that in 2025, the national medium- and long-term trading electricity volume will be 63.522 trillion kilowatt-hours, while spot trading electricity volume will be 287.2 billion kilowatt-hours. The market framework has already been established, but the truly high-frequency, continuous, and hedgable market depth is still in the process of formation. Because of this, China will not simply replicate the already mature financialized structure of the U.S., but will form its own rhythm under a higher proportion of new energy and stronger system constraints
<h3>4. The Next Stage of Competition is Volatility Management and Regulatory Boundaries</h3>
As China's electricity market continues to advance, competition will increasingly focus on volatility management capabilities. Price discovery, forward price locking, long-term agreements for green electricity, inter-provincial combination optimization, energy storage scheduling, and load aggregation will all be amplified. The higher the proportion of new energy sources in the market, the more participants will need to manage price volatility, output fluctuations, and spatial-temporal mismatches. The experience in the United States has already proven that once the market enters a financialization stage, trading centers will gradually shift from physical electricity to the risk itself. The combined trading volume of ICE and Nodal is approximately 2.6 times the total social electricity consumption, which is the most intuitive example.
However, the reference provided by the U.S. market includes not only high liquidity but also high volatility costs. During the Texas cold wave in 2021, ERCOT electricity prices surged to the system cap of $9,000/MWh, after which Texas regulators lowered the wholesale electricity price cap from $9,000/MWh to $5,000/MWh in an attempt to prevent similar extreme scarcity prices from amplifying risks again. The joint investigation report by FERC and NERC attributed that incident to a combination of extreme weather, insufficient winterization, fuel supply issues, and systemic resilience shortcomings. This case illustrates that financialization can enhance liquidity and price discovery efficiency, but if the underlying supply security, system resilience, and rule design do not keep pace, the price mechanism can also amplify risks exponentially under extreme conditions.
The Chinese market will also place greater emphasis on risk management in the future, but it will not deviate from the two regulatory red lines of energy supply security and price stability. The implementation opinions for 2026 clearly state that efforts must continue to improve the medium- and long-term market that ensures the safe and stable supply of electricity, solidifying the foundation for electricity supply security; the operating entities participating in the spot market must meet national energy security supply requirements in terms of signing and fulfilling medium- and long-term contracts. The key points for energy regulation previously released by the National Energy Administration also require strengthening daily inspections, weekly reports, and monthly summaries of electricity supply and demand during critical periods such as peak summer and winter seasons, as well as enhancing market trading and supply guarantee supervision. The boundaries of Chinese-style marketization are clear: market tools can be more abundant, and price signals can be stronger, but the premise remains that financialization must not erode supply guarantees, and price fluctuations must not severely impact people's livelihoods and industrial stability.
Within this framework, the importance of system flexibility and data capabilities will rise. By the end of 2025, China's new energy storage cumulative installed capacity is expected to reach 144.7 GW, a year-on-year increase of 85%, and a 45-fold increase compared to the end of the 13th Five-Year Plan. Energy storage is transitioning from construction requirements to resources that are closer to the real market. Independent storage, new energy matching storage, demand response, virtual power plants, and load aggregation will increasingly be directly embedded in trading and revenue models in the future. Those who can combine flexible resources with trading strategies are more likely to achieve excess returns in a high-proportion new energy system.
Weather is also transitioning from background information to a trading variable. In an era dominated by thermal power, weather primarily affected seasonal load levels or local hydropower water conditions. After the high proportion of wind and solar power enters the system, wind speed, irradiation, cloud cover, temperature, and humidity will more directly influence output curves, net load levels, energy storage scheduling windows, deviation assessment results, and inter-regional trading values
China's cumulative installed capacity of wind and solar power has reached 1.84 billion kilowatts, accounting for 47% of the total installed capacity. This means that the impact of weather disturbances on the marginal state of the system is being rapidly amplified. Those who can better predict the wind and solar output, load ramp-up, local tight periods, and price changes for the next day will have more initiative in trading, pricing, and resource scheduling. After the full market entry of new energy, this capability will gradually shift from auxiliary capability to competitive capability.
From this perspective, the next stage of the Chinese electricity market will not only be about trading licenses or the ability to match electricity volumes, but also about whether one can integrate price, weather, load, energy storage, inter-regional flows, and risk exposure into the same analytical framework. The experience of mature markets in the United States has proven that market depth ultimately depends on the ability to handle uncertainty. China faces a market with a higher proportion of new energy, more complex inter-regional coordination, and heavier industrial loads, making the importance of such capabilities rise even faster.
<h3>5. Trading volume is merely a surface change; capability stratification is the next stage</h3>
The statement that China's electricity trading will not replicate that of the United States emphasizes that the issues China needs to address are larger, more advanced, and more complex. The reference provided by the U.S. market is how to turn risk into market capability; the question the Chinese market needs to answer is how to organize price discovery, risk management, flexible resources, and predictive optimization more quickly under conditions of super-large scale and high new energy proportion.
In the coming years, what is truly worth paying attention to may not be how much trading volume can still grow. What is more worth noting is who can first turn volatility into price, turn price into contracts, and turn contracts into risk management capabilities. Those who can achieve this will be closer to the core position of the next stage of the Chinese electricity market

MCHI

DRAG

KGRN

China's electricity market has entered a deep-water zone, and it will not simply replicate the American model in the future. The high proportion of new energy and the super-large electricity consumption scale require China to establish new market capabilities that balance liquidity, risk management, and system security. By 2025, the electricity market transaction volume is expected to reach 6.6394 trillion kilowatt-hours, with green electricity trading volume increasing by 38.3% year-on-year. The policy direction is clear, and future efforts will focus on addressing issues such as price fluctuations, system balance, and resource adjustment

The Chinese electricity market does not need a replica of the American model