INSIGHTS | China’s Green Electricity Market and Certificates, Explained

On May 23, the Beijing Power Exchange Center published new rules for green power trading, in line with the National Development and Reform Commission (NDRC)’s policy on green electricity trading pilots in August 2021. As China is still exploring effective approaches to upgrade its energy structure, certain terminologies in green energy are easily confused, such as Green Electricity Consumption Certificates (绿色电力消费证明, or 绿证 in the new trading rules) and Green Electricity Certificates (绿色电力购买证明, also commonly referred to as 绿证). This article intends to explain the terms related to green power and discuss the decision-making for entities when considering renewable power purchases in China. 

Green Electricity Trading in China

Green electricity is produced from non-fossil fuel resources such as wind, solar energy, geothermal heat, and biomasses. Its production generally has a much lower environmental impact compared to that of conventional electricity. Green electricity also conserves limited resources and avoids a large number of greenhouse emissions from fossil fuel combustion. In China, green electricity is mainly generated from wind and solar.  A green power system is a network of green electricity suppliers and consumers. In the power trading market, the suppliers are renewable energy generators, while buyers normally include enterprises and power retailers.

The general trading process starts with buyers signing Power Purchase Agreements (PPA) in the green power market with suppliers. Then, the agreed amount of green energy will be allocated to the buyers. According to the new rules published by Beijing Power Exchange Centre, China’s trading system involves two types of transactions: in-province trading and cross-province trading. In-province end users and power retailers can purchase green power directly from a power generation firm within the province, while out-of-province buyers have to bid for renewable products from a distributor recognized at the province level. 

Green Electricity Consumption Certificate

Once the transaction is completed, the end user of green electricity can obtain a Green Electricity Consumption Certificate (as shown in Graph 2) issued and verified by Beijing Power Exchange Center. This certificate enhances the credibility of the trade as it records and makes traceable all the information about the life cycle of the purchased green power. The end user can then use this certificate as evidence of renewable energy use and directly reduce its scope 2 emissions (carbon emissions attributed to purchased energy) in its carbon accounting.

Green Electricity Certificate (GEC)

Compared to Green Electricity Consumption Certificates mentioned above, which are issued per completed transaction, Green Electricity Certificates (GECs) are issued per megawatt hour of green power purchased and include basic information such as resource/fuel type (e.g., wind, solar), serial ID, and issuance date. GECs can be regarded as a Chinese version of Renewable Energy Certificates (RECs), which are more familiar to international traders. Therefore, GEC is an asset representing one megawatt hour of electricity generated by a renewable energy source. Voluntary buyers of GECs are allowed to claim their support for restructuring energy consumption and their contribution to the decarbonization target, as the price of GECs paid can be regarded as an investment in renewable energy production. However, GECs cannot be traded between buyers once they are purchased from the green electricity market.

The most obvious difference between Green Electricity Consumption Certificates and GECs is whether the certificate indicates the direct use of renewable power. In other words, obtaining a Green Electricity Consumption Certificate indicates that the company cuts scope 2 emissions from the source while purchasing GECs allows a company to offset carbon emissions while maintaining the use of electricity from fossil fuels.

GECs Trading in China

In July 2017, the China Renewable Energy Engineering Institute (CREEI) designed and launched a pilot GEC system, allowing businesses and individuals to buy renewable energy voluntarily. China’s GECs are compliant with RE100, the global initiative requiring its signatories to commit to 100% renewable electricity. Eligible sellers in China’s GEC market are large-scale onshore grid-connected wind and solar PV projects receiving a Feed-in-Tariff (FiT). GECs in the market are assessed and verified by the National Renewable Energy Information Management Center. Similar to RECs, buyers of GECs should purchase strictly according to their carbon emission reduction targets and assess their targets annually, as the GECs can be only traded once in order to avoid double accounting, and surplus GECs cannot be traded after the transaction.

Reasons for Considering Green Electricity or GECs

Policies call for higher participation in renewable energy. China announced its ambition in 2020 to peak carbon emissions in 2030 and achieve carbon neutrality in 2060 (30-60 targets). In October 2021, right before COP26, China established a “1+N climate policy system”, which set out the roadmap toward China’s 30-60 targets. Notably, the policy framework calls for climate action in key areas, such as optimizing the energy structure. Province-level regulations are also pushing companies to adopt more renewable energy use. For example, energy-intensive corporates are required to increase their renewable energy proportion to over 30% by 2025 in Jiangsu Province. Green electricity and GECs are effective and convenient methods to contribute to carbon reduction and power structure transition for individual corporates.

China’s struggling to change the energy structure to meet net-zero commitments. China still heavily relies on fossil fuels for its energy needs. The China National Bureau of Statistics shows that in 2021, coal remains the major power source, accounting for 56% of primary energy use, while shares of the oil and natural gas in the mix were 18.5% and 9%, respectively. Meanwhile, the total consumption of renewable energy only occupied one-quarter of the entire energy mix. McKinsey analyzed that if the world should meet the net-zero goal in 2050 in line with the Paris Agreement, renewable energy consumption should increase to 83% while coal should be phased out of the power mix. China, despite seeing impressive growth in solar and wind development in recent years, still has a large gap to fill under the current power structure. Momentum in GEC purchase presents a growing market demand for green electricity, which will directly stimulate the production and development of renewable energy in China.

Corporates can obtain environmental and commercial benefits from GEC purchases. Corporates can reduce their scope 2 emission with Green Energy Consumption Certificates and offset scope 2 emissions via GECs. Both methods can contribute to firms’ carbon reduction targets. Moreover, purchasing green power or GECs has commercial benefits, as it improves the company’s reputation as a climate-aware entity and provides a competitive edge as a sustainability-minded business.

What to consider when choosing renewable energy purchases?

• Credibility and acceptance of the instruments

Since the current green electricity market is only within China and is not tradeable, Green Energy Consumption Certificates’ acceptance is low in the global market. However, GECs have fewer restrictions on the trading boundary and are recognized globally, as they are approved by RE100 and supported by CDP. In addition to GECs, I-RECs from the Netherlands and TIGRs from the US are two other international alternatives to China’s GECs. Companies should consider their operation and carbon accounting boundaries when selecting renewable certificates and choose instruments that best align with their circumstances.

• Flexibility and accessibility

The production of renewable energy is strongly affected by seasonal factors and catastrophic risks, leading to instability of renewable electricity at times. Compared to direct renewable energy, GECs are more flexible and accessible as they are similar to an investment in renewable projects. However, companies should prepare an explicit carbon target before committing to the purchase of GECs as they are not allowed to sell the GECs after the purchase. For instance, large industrial groups may choose to purchase renewables or hybrid electricity, while companies that are not energy-intensive, such as professional services firms, may want to buy GECs.

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