China plans to introduce specific rules for the issuance, trading, and transfer of green electricity certificates (GECs). The National Energy Administration (NEA) solicited public opinions on these draft regulations during April and May 2024.
GECs have a validity period of two years: Biomass and geothermal power projects were not eligible to apply for GECs until 2023, and therefore, their GEC revenues for existing electricity output will be partially affected.
GECs can only be traded once: International renewable energy certificates (I-RECs) can be transferred multiple times before cancellation due to a mature trading mechanism and ample supply. Conversely, China's GEC trading market is nascent and requires substantial system improvements. Multiple trading risks double-counting of environmental attributes.
In 2023, China's power generation from clean energy sources totaled around 2.8 trillion kWh. Based on an average trading price of 10 yuan per certificate, the annual supply scale of the GEC market is projected to reach approximately 28 billion yuan.
First-Ever Introduction of GEC Retirement Mechanism
The absence of a retirement mechanism may lead to double-counting of environmental attributes and incomplete data traceability. Furthermore, the low recognition of Chinese GECs has impeded their international market expansion.
The draft rules propose, for the first time, introducing a retirement mechanism for GECs after their 2-year validity period or after being used for renewable energy consumption certification. Additionally, the rules mandate that renewable energy projects can only apply for domestic GECs and the electricity corresponding to GECs cannot be claimed by other certificates with the same attributes in the electricity sector. These rules aim to ensure the uniqueness of GEC's environmental attributes and establish a foundation for enhancing the international recognition of Chinese GECs.
However, in practice, some overseas suppliers have explicitly refused to accept any renewable energy usage proof submitted in the form of Chinese GECs due to their low recognition. This may pose challenges for companies seeking to expand their business internationally.
GECs valid for two years
With the promotion of China's mandatory renewable energy consumption mechanism, the demand for green power and GECs is set to rise significantly. Imposing a validity period on GECs can accelerate their sales, reducing the risk of market disruption due to certificate stockpiling.
The validity period starts from the electricity production date. No GECs will be issued for renewable energy generated before July 2022, retroactively covering two years before the rule implementation. Additionally, GECs not traded within the specified period will be annulled. Biomass and geothermal projects, which were not included in the GEC issuance scope until 2023, risk certificate expiry for some existing electricity output, affecting their green certificate revenues.
China's GEC Market to Exceed 10bln Yuan
In 2023, China's combined hydropower, wind power, and solar power generation reached around 2.8 trillion kWh, an 8.5% increase from the previous year. With the latest average transaction price for GEC at 10 yuan per certificate on the China Green Electricity Certificate Trading Platform, the annual GEC supply market is projected to reach about 28 billion yuan.
However, as GEC demand in China is primarily policy-driven, the overall demand has remained limited. By the end of 2023, 240 million GECs had been issued nationwide, with only about 20% being traded, according to data from the National Bureau of Statistics.
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Edited by Aggie Hu, huchenying@mysteel.com