Multinational corporations are keen to buy clean energy in China to lower the carbon footprint of their operations and throughout their supply chain. Whilst China has ambitious plans for Renewable Energy development and encourages Renewable electricity (RE) consumption through market based solutions, China is still amongst the most challenging countries to procure RE, according to RE100's recent two annual reports.
Now is the time to collectively drive for a more favourable regulatory landscape and demonstrate the scale of growing corporate demand for renewable energy, and piloting renewable energy procurement options now throughout China should be seriously considered.
On-site distributed projects (mainly solar) are an established option and already widely adopted by corporations in China, either through CAPEX or third-party ownership structures. Such projects are often the first step for many companies to transition part of their electricity consumption from non-renewable to renewable sources in the short term. Companies including Anheuser-Busch InBev, Apple, BMW Group, Danone, Intel, 3M and others all have installed distributed solar for their sites in China. Although relying on on-site distributed projects is a relatively direct and effective method to consume renewable electricity, the electricity amount generated from on-site solar PV is typically not enough (i.e. 3%-10%) to cover office or factory consumption. RE100 reveals that around 6.6% of the share of RE consumption by RE signatories in China is achieved by on-site distributed projects in 2020. This illustrates how the small size of these projects remains the biggest drawback for self-generation.
The use of unbundled Energy Attribute Certificates (EACs) is common for companies globally and in China, around 60% of RE consumption by RE100 members in China is fulfilled through purchasing of EACs. However, the majority are international EACs instead of domestic Green Electricity Certificates (GEC) and GECs have only been conditionally accepted by RE100 due to the existence of double counting risks.
The GEC scheme was launched as a pilot program in 2017 with a primary purpose of reducing Feed-in-Tariff (FiT) from the government via driving a market-based mechanism. However, most power producers are unwilling to give up the fixed subsidy and as such the GECs from subsidized projects are expensive with very low demand. Grid parity GECs have been available in the market since July 2021, nonetheless GEC prices remain comparatively higher with an average price of 6.7EUR/MWh and the demand for GECs remains low. It is expected that the addition of grid parity GECs will increase supply and reduce cost in the long-term.
In 2019 China established the Renewable Portfolio Standard (RPS) where wholesale market players are required to source a portion of their electricity from renewables. But the roll out of the scheme has introduced a systematic double counting risk for corporate RE claims related to the use of GECs. This is due to the fact that the amount of renewable MWh consumption and the associated GECs that corporate buyers purchase will also be counted towards RPS obligation fulfilment. The RPS will track RE consumption of wholesale market players and verify their RPS obligation fulfilment, but at the same time the same renewable MWh production can also be issued with unbundled GECs or other attributes, where the offtaker can claim the ownership of the same RE MWh. This creates a challenge for corporates seeking EACs to meet their obligations. As of March 2022, a robust RE tracking system to avoid the double counting risk has not yet been issued.
Bilateral contracts (the Chinese version of Corporate Power Purchase Agreement, CPPA) were first introduced as pilots in select provinces, typically those with high curtailment rate. 'Guaranteed Purchase Hours' (最低保障收购年利用小时数) were implemented in provinces with curtailment issues whereby a minimum amount of annual hours generated from wind and solar projects are guaranteed to be purchased by the local grid. Producers who generate renewable electricity beyond the minimum annual hours are encouraged to offer this surplus in power market transactions, including CPPAs. In provinces that do not set 'Guaranteed Purchase Hours', a full guaranteed purchase policy is implemented which gives priority for the renewable electricity generation.
Whether you are just starting or already on your way to corporate leadership in China, embarking on your renewable energy journey with these options and challenges in mind enables your company to harness opportunities that will unlock cost-savings potential and develop a competitive advantage over your peers, while supporting the global energy transition and your commitments to climate change.
South Pole's renewable energy experts and sustainability advisors are ready to help you on your renewable energy journey.