The "Yin-Yang Contracts" in the Electricity Market Exposed: A Trust Crisis Worth Billions Caused by Soaring Electricity Prices
Hello everyone, I'm your financial analyst. Today, we're not talking about stock market charts or real estate price fluctuations, but about a story that affects every kilowatt-hour of electricity we use, every penny we spend, and even the very foundation of the entire energy market.
On August 25th, a lawsuit in Foshan, Guangdong, completely exposed a long-standing "gray area" within the electricity industry—the practice of off-market rebates.
Simply put, it involved a transaction pattern where power generation companies, electricity selling companies, and large industrial consumers engaged in double-dealing: one set of agreements was public, and another was secret. Now, due to a sudden shift in market conditions, this system has collapsed, leading to mutual debt claims and even legal disputes.
In this article, I'll break down what's happening in plain language: Why did people take such risks? Where does the problem lie now? And what does it mean for ordinary people and businesses?
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The Core Story: A "Yin-Yang Contract" Leads to Millions in Claims
Let's start by translating the complex legal jargon into language that's easier to understand.
1. Who are the main parties involved?
- Plaintiff (buyer): A technology company in Foshan, a major electricity user.
- Defendant (seller): An electricity sales company in Guangdong, affiliated with a large power generation group.
2. What contracts did they sign?
At the end of 2025, to lock in electricity usage for the following year, both parties signed two contracts:
- "Public contract" (registered online): This was for the electricity trading center to see and was officially recognized. It was signed at the government-mandated minimum price of 0.372 yuan per kilowatt-hour, which is both compliant and used for billing.
- "Secret contract": This was a private agreement between the two parties, where the seller agreed to give the buyer an additional 0.068 yuan per kilowatt-hour as a rebate.
- Actual cost to the buyer: 0.372 yuan - 0.068 yuan = 0.304 yuan per kilowatt-hour.
- Purpose: The seller aimed to attract customers by offering a lower price and then reimbursing the difference privately.
3. The conflict arose:
From January to May 2026, the seller failed to pay the rebate. The plaintiff (the buyer) sued for the rebate and damages in the millions.
4. Both sides have their versions of the story:
- The seller (defendant) claims: The secret contract was a "yin-yang contract" designed to circumvent government price controls (since the actual price was below the minimum of 0.372 yuan), so it's invalid. They only recognize the official contract at 0.372 yuan and say they owe no money.
- The plaintiff (plaintiff): The contract was signed voluntarily and did not violate any legal requirements. The public contract was just for billing, while the secret contract reflected the true intentions. The seller breached the agreement by going back on their promise of a lower price.
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Why Did the Electricity Industry Use Off-Market Rebates?
This is not just a dispute between two companies; it was a collective gamble by the entire Guangdong electricity market at the end of 2025 and the beginning of 2026. Let's analyze the logic from four perspectives:
1. The Trigger: A Fierce Competition for Customers
At the end of 2025, during the long-term electricity agreement signing period, competition intensified.
- Private electricity sales companies competed by offering extremely low prices to attract large industrial customers.
- State-owned power generation groups had to follow suit to maintain their market share.
- Result: The actual transaction price dropped to around 0.3 yuan per kilowatt-hour.
- Challenge: The official minimum contract price was 0.372 yuan per kilowatt-hour. Signing at 0.3 yuan would be illegal and not allow the transaction to go through the system.
- Solution: The "compliant online contract (0.372 yuan) + off-market rebate (0.072 yuan)" became the norm. Everyone understood the risks but chose to proceed this way.
2. How It Worked: A Tripartite Game
This involved three parties in a circular arrangement:
- Power generation companies (upstream): They gave rebates to electricity sales companies.
- Electricity sales companies (middlemen): They received the rebates from the power plants and gave most of them to the consumers.
- Consumers (downstream): They got electricity at a lower price, reducing their costs.
- Key Detail: All parties knew this was risky and explicitly agreed to it in the contract, acknowledging the risks and agreeing to bear them voluntarily.
3. The Turning Point: The "Black Swan" of February 2026
The seemingly perfect model was shattered in February 2026 when electricity prices in the spot market soared.
- Consequences:
- Power generation companies: From profitable to incurring massive losses. The long-term contract price was fixed at 0.372 yuan, but spot market prices were much higher, resulting in huge losses.
- Electricity sales companies: They faced pressure from both ends. Power plants stopped paying rebates, and consumers demanded them. The companies' financial chains broke, leading to defaults.
- Essence: This was a classic case of mismatched risks: Power generation companies took on the risks of market fluctuations but tried to transfer some of the profits through off-market rebates. When the risks materialized, they chose to cut off the rebates to protect themselves.
4. The Current Situation: A Debt Snowball Worth Billions
- The scale is staggering: Estimates suggest that power generation companies in Guangdong owe electricity sales companies billions in rebates for 2026.
- Chain Reaction: Power plants don't pay -> Sales companies can't pay consumers -> Consumers sue sales companies -> Sales companies sue power plants.
- Market Stalemate: The industry is now filled with debt collection notices and legal letters. More seriously, the unresolved disputes have led to a freeze in new long-term contract negotiations for 2027.
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The Legal Question: How Will the Court Rule? It Could Determine the Industry's Future
This case is significant because it's not just about a monetary dispute but also about setting a legal precedent. Lawyer Wei Bin's analysis provides two possible outcomes and their implications:
Possible Outcome A: The court rules the off-market rebates invalid
- Reason: Such practices are seen as circumventing electricity trading rules and government price controls, violating public order and morals.
- Consequences:
- The secret contract will be deemed invalid, and only the official contract at 0.372 yuan will be recognized.
- Consumers won't receive the rebates and will have to pay at the official rate.
- Impact on the industry: This would completely eliminate off-market rebates, forcing all transactions to be transparent and compliant. Although it may harm consumers in the short term, it will make market rules clearer and risks more manageable in the long run.
Possible Outcome B: The court rules the off-market rebates valid
- Reason: The contract reflects the true intentions of the parties and does not violate any legal requirements. The court respects contractual freedom as long as it's not illegal.
- Consequences: The defendant must pay the rebates.
- Impact on the industry: This would legitimize off-market agreements, allowing for price adjustments if both parties agree. However, it could increase regulatory challenges as many transactions will remain outside official platforms.
The Key Question: Where Is the Line?
Regardless of the outcome, the court needs to clarify:
- What is the difference between legitimate commercial discounts and illegal attempts to evade regulations?
- If the price reduction was due to fierce market competition and did not harm the public interest, should it be allowed?
- If it was a deliberate attempt to undercut the government-set price limit, it should be prohibited.
This judgment will set a precedent for future electricity market contracts in Guangdong and across the country.
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Lessons for Ordinary People and Businesses
Although this is a B2B transaction, its implications are widespread:
1. For electricity users (factories, businesses, etc.):
- Be wary of low prices that may hide legal risks. If someone asks you to sign a "yin-yang contract" or promises an off-market rebate, it's a significant legal risk. If the supplier stops supplying, your discount promise could be void.
Prioritize compliance: Choose electricity sales companies with transparent, compliant transactions and a good reputation.
2. For power generation and sales companies:
Compliance is crucial: Trying to gain a market advantage through illegal means can backfire in volatile markets. This case shows that off-market rebates are extremely fragile.
Risk Management: When signing long-term contracts, carefully consider spot market fluctuations and establish reasonable risk-sharing mechanisms.
3. For the entire energy market:
- Moving towards order:** This dispute highlights the need for clearer regulations. A clear legal framework will give market participants confidence and help the market mature.
Conclusion
The Foshan electricity rebate dispute may seem like a small case about a few million in debt, but it's actually a profound test of China's electricity market reform process.
It highlights that:
1. There are no free lunches: Prices below cost or below regulatory limits often carry significant compliance and fulfillment risks.
2. Contracts must have legal boundaries: "Voluntary" agreements cannot be used to evade regulations, but regulations should not overly restrict legitimate business practices.
3. The market needs clarity: In ambiguous areas, all participants are at risk. Those who take shortcuts are likely to suffer the most when market conditions change.
In the coming months, we will closely follow the court's decision. It will not only affect these companies but also determine how electricity prices will be set in the coming years and whether the market will truly become mature and transparent.