Building a new type of power system requires the establishment of a multi-dimensional value system for power commodities, which incorporates elements such as power value, reliability value, flexibility value, and green environmental value. In recent years, China has made a lot of efforts and explorations around the green environmental value of renewable energy, and basically developed a green power consumption certification system that is based on the policy constraint of renewable energy consumption responsibility weight, with green power trading as the main means to fulfil the consumption responsibility, and with green electricity certificates as the complementary measures for compliance.
In order to link different green power products from the perspectives of power generation and users, to provide a unique and authoritative proof for green power production and consumption, and to further enhance the role of green electricity certificates in building a green and low-carbon environmental value system for renewable energy power, guiding green consumption of the whole society, etc., the National Development and Reform Commission, the Ministry of Finance, and the National Energy Administration jointly issued the “Notice on Doing a Good Job in the Full Coverage of Renewable Energy Green Electricity Certificates and Promoting the Consumption of Renewable Energy Power” (NDRC [2023] No. 1044) (hereinafter referred to as the “Notice”). The “Notice” further clarifies the authority, uniqueness and universality of green electricity certificates, achieves the full coverage of green electricity certificate issuance for renewable energy power, and puts forward specific requirements for standardizing green electricity certificate issuance, improving green electricity certificate trading, enabling good application of green electricity certificates, encouraging green power consumption, strengthening green electricity certificate supervision, etc.
Based on the main contents of the “Notice”, and taking into consideration the domestic and foreign trading situations of green power and green electricity certificates in recent years, the author sorted out the main concerns related to the “full coverage of green electricity certificates”.
01 What are green electricity certificates?
Green electricity certificates (GECs), also known as “Renewable Energy Green Electricity Certificates”, are electronic certificates with unique identification codes issued to renewable energy power generation projects for the green power they produce. One GEC represents 1000 kWh of renewable energy power.
The “Notice” reaffirms that GECs are the only way to verify the environmental benefits of renewable energy power, and the only credential for recognizing green power production and consumption. It also clearly states that it aims to enhance the authority and applicability of GECs in facilitating green power trading, verifying green power consumption, and linking with the power carbon market, etc.
02 What are the uses of GECs?
GECs can be used for various purposes, such as accounting and certifying the consumption of renewable energy power. Following the “Notice”, another notice on the “Renewable Energy Power Consumption Responsibility Weight and Related Matters in 2023” further specified that each market entity that bears the obligation of green power consumption should mainly use the GECs they own to calculate their performance.
The “Notice” also introduced the concept of green power consumption certification for the first time, indicating that China will actively establish a system (including standards, policies and logo management) for certifying green power consumption based on GECs. Providing a legal and compliant basis for green power consumption certification will be one of the key tasks in the next stage. If the relevant certification standards are issued, GECs and green power are expected to seamlessly link with the national carbon market and unleash a huge demand for GECs.
In addition, GECs have specific applications, such as offsetting carbon footprint, helping enterprises to meet their ESG (environmental, social and corporate governance) goals, offsetting energy consumption intensity, etc., but there are no specific implementation measures to clarify how GECs can offset carbon emissions in carbon verification, and the issue of double counting of GEC and CCER (Chinese Certified Emission Reduction) projects should also be paid attention to.
03 How are the GEC-related policies developed?
In 2017, China launched a pilot program for issuing and voluntarily subscribing to GECs, and the state granted GECs to the on-grid power generated by onshore wind and centralized solar projects that received subsidies, and stated that users could buy GECs as proof of their green power consumption.
In 2020, the state specified that each market player that had a consumption obligation could buy GECs to fulfil their renewable energy power consumption quota, which created a market for the issued GECs.
In 2021, the power trading institutions initiated green power trading, and the power trading institutions applied for GEC issuance from the National Renewable Energy Information Management Center after completing the transactions, and then allocated the GECs to the buyers of the green power through the power trading institutions.
In 2022, the state announced that the additional consumption of renewable energy would not be subject to the total energy consumption control requirements, which further expanded the market for GECs and green power consumption. Enterprises with increasing energy consumption could buy GECs and green power to offset their annual energy consumption, to avoid being penalized.
On July 2023, the second meeting of the Central Committee for Comprehensively Deepening Reform reviewed and passed the “Opinions on Promoting the Gradual Transition from Energy Consumption Dual Control to Carbon Emission Dual Control” (Dual Control means the control of power consumption volume and intensity), which, as an enhancement of the previous policies, indicated that after the refinement of the energy consumption dual control policy system, there was already a basic foundation for shifting to carbon emission dual control. The limitations on renewable energy in terms of energy consumption intensity were expected to be removed, which would benefit the further growth of the market for GECs and green power.
On August 3, 2023, the “Notice” was released, easing the criteria for GEC issuance, and granting GECs for all the power produced by renewable energy power generation projects that had been filed and registered, including wind power (including distributed wind power and offshore wind power), solar power (including distributed photovoltaic power generation and solar thermal power generation), conventional hydropower, biomass power, geothermal power, marine power, etc., achieving the full coverage of GEC issuance.
04 How to trade GECs?
Apart from the existing conventional hydropower projects (before January 1, 2023), all other renewable energy power generation projects that have been filed and registered, including centralized wind power, centralized solar power, distributed wind power, offshore wind power, distributed solar power, solar thermal power, new hydropower (after January 1, 2023), biomass power, geothermal power, marine power, etc., can trade their GECs in the market. The GECs that are currently tradable can only be traded once.
The trading is based on the China Green Electricity Certificate Trading Platform the Beijing Power Trading Center and Guangzhou Power Trading Center, and may be expanded to other trading platforms approved by the state in the future. GEC trading uses various methods, such as bilateral negotiation, listing, centralized bidding, etc. For the GECs of projects that receive central fiscal subsidies, the initial stage mainly uses bilateral negotiation and listing methods, and will gradually shift to centralized bidding mode in the future. There is no restriction on the GEC trading method for parity (low-price) projects, projects that voluntarily renounce central fiscal subsidies and projects whose central fiscal subsidies have expired.
05 Which entities can participate in GEC trading?
The sellers of GECs are renewable energy power producers who voluntarily sign up on the trading platform and post their GECs for sale.
The buyers of GECs mainly fall into four categories: government agencies at all levels, enterprises and public institutions, social organizations and individuals.
Currently, the state does not restrict individuals from purchasing GECs, but GECs can only be traded once and are not transferable. Therefore, individuals shouldn't buy GECs as an investment. Individuals usually buy GECs as a way of offsetting their personal power-related carbon emissions, which only have a charitable value and no real benefits.
06 Who owns the income of GECs?
For projects that no longer enjoy central fiscal subsidies, the income of GECs belongs to the power generation enterprises or project owners.
For projects that enjoy central fiscal subsidies, according to the relevant national regulations, those that are part of the national guaranteed purchase scheme, the income of GECs is offset by the central fiscal subsidies or belongs to the state; those that are part of the market-oriented transactions, the income of GECs is deducted by the same amount when the central fiscal subsidies are issued.
07 What are the appeals of enterprises to buy GECs?
First, multinational corporations and their industrial chain partners are dedicated to sustainable development. These enterprises have renewable energy consumption requirements for both themselves and their suppliers under their ESG frameworks.
Second, the “Notice” stated that central and local state-owned enterprises, as well as government and public institutions, should take the lead and gradually increase their green power consumption ratio. Therefore, these entities will need to buy GECs.
Third, the various green power initiatives, such as green power enterprises, green power parks, green power cities, etc., that are being developed across the country will also require GECs.
08 Should I choose GECs (separation of certificates and power) or green power (combination of certificates and power)?
Although there is debate in the academic field over whether GECs have any additional environmental benefits than green power alone, in practical terms, buying GECs separately or buying green power with the accompanying GECs have the same effect.
From a global perspective, since GECs have the product feature of claiming environmental rights without the need for actual power consumption, there emerge some system flaws that allow green power to be wasted on the grid and GECs still be issued. Thus, many multinational companies are not very keen on buying GECs directly, and prefer to buy green power directly through signing long-term power purchase agreements (PPA) or buying from regulated power markets, and getting certified for their green environmental attributes. In the future, whether to buy green power or GECs will mainly depend on the user’s needs and the policy changes.
09 What is the relationship of GEC with I-REC, CCER, Carbon Inclusive and others?
In China, green electricity certificates generally refer to China Green Electricity Certificates (GECs), but there are also two types of international certificates (I-REC and TIGR) available on the market. In principle, only one of these three certificates can be applied for. The selling price of China GECs is slightly higher than those of international certificates. According to previous trading data, the price of GEC stays above 40 yuan/piece, while the average price of I-REC and TIGR is below 30 yuan/piece (if not much lower).
To choose between domestic or international certificates, the “Notice” also provides specific guidance. China GECs are the only proof of the environmental benefits of domestic renewable energy, which officially excludes the applicability of international certificates in the Chinese market. Whether it is power producers or power consumers, applying for and buying domestic certificates involves lower policy uncertainty risks and is more suitable for the Chinese market.
For the same amount of renewable energy power, power producers can only choose to apply for GEC, CCER (Chinese Certified Emission Reductions) or Carbon Inclusive credits, and the environmental rights of the same amount of renewable energy power are unique and cannot be applied for more than once in principle.
Currently, the CCER market is preparing to restart. Due to the rise of the carbon market, its price surged from 10 yuan/ton to 40 yuan/ton in 2021. There is a certain degree of substitution between CCER and GEC, and the opening of the CCER market will inevitably affect the current GEC price, and there is an expectation of price drop in the short term. CCER’s role in offsetting emissions in the national carbon market has clear policy rules, but its offsetting has a 5-10% cap. Buying GECs can offset the carbon emissions caused by the energy use of enterprises, and there is no limit to the amount of offsetting. In extreme cases, enterprises can buy enough GECs to offset all the carbon emissions caused by their purchased power. For energy users who mainly buy power, buying GECs can achieve better emission reduction benefits.
