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China Lays Out New Scheme for Green Electricity Certificate


8 minute read | November.13.2023

On August 3, 2023, China’s National Development and Reform Commission (NDRC), the Ministry of Finance (MoF), and the National Energy Administration (NEA) jointly issued the “Notice on Full Coverage of Renewable Energy Green Power Certificates to Promote Renewable Energy Electricity Consumption” (NDRC [2023] Document No. 1044) (“Document 1044”). Document 1044 replaced the previously effective Document 132[1] and brings China’s GEC scheme into a new stage. By releasing the document, the Chinese authority officially affirms China’s domestic renewable energy certificate (the Green Energy Certificate or GEC) as the sole instrument to track renewable energy consumption in China going forward and will replace I-RECs that have been utilized in the past by multinational companies operating in China. To assess how these rules will change your company’s approach to decarbonisation planning in China, please consult with your usual contacts at Orrick or the authors of this client alert.

1. What Does Green Electricity / Green Electricity Certificate (GEC) Mean in China?

  1. Green Electricity

    Green power or green electricity refers to electricity that is generated from renewable energy sources, such as wind, solar, hydro, and other environmentally friendly sources.

  2. Green Electricity Certificate (GEC)

Green Electricity Certificate (GEC), also known as Renewable Energy Certificate or Green Energy Certificate, is an electronic certificate with a unique identification code issued for green power generated by renewable energy projects.

According to Article 2 of Document 1044, GECs are the sole proof of the environmental attributes of electricity generated by renewable energy in China and the exclusive certification for the production and consumption of renewable electricity. One GEC unit corresponds to 1,000 kilowatt-hours of green electricity.

2. Who Issues GECs and to Whom?

  1. Regulator

    China’s National Energy Administration (NEA) is responsible for the issuance and administration of GECs.

  2. Types of power generators

Previously, only green energy generated by onshore wind and utility-scale solar generators would be qualified for issuances of GECs. With the new policy under Document 1044, almost all renewable energy projects are now eligible to generate GECs. Eligible types now include all wind power (including distributed and offshore wind), all solar power (including distributed and utility-scale solar), hydropower, biomass-to-power, geothermal power, and wave power.

Renewable energy projects must be filed on China’s National Renewable Energy Power Generation Project Information Management Platform before GECs can be issued for such projects. Currently, tradable GECs can be issued for on-grid power generated by all renewable power projects except for hydropower projects that started operation before January 1, 2023.

3. What Are the Venues for Trading GECs?

According to Article 4(6) of Document 1044, GECs shall be traded on the China Green Electricity Certificate Trading Platform (https://www.greenenergy.org.cn/), Beijing Power Exchange Center (http://bj-px.com.cn:8020/index.html), and Guangzhou Power Exchange Center (https://www.gzpec.cn/main/index.do). In the future, the government may designate other platforms as trading venues for GECs.

Currently, tradable GECs can be traded only once on one of the designated trading venues and cannot be resold.

4. How Are GECs Bought and Sold?

GECs can be traded on the trading platforms as mentioned above. In other cases, when the power customer buys green electricity from the generator via a Power Exchange[2], GECs are transferred to the customer alongside (such GECs are hereinafter referred to as “Bundled GECs” and such trading referred to as “Bundled Trading”) (see details in question 5 below).

For the sole trading of GECs to a buyer without the sale of green electricity, i.e., trading of “Unbundled GECs”, both the seller (power generator) and the buyer shall log onto one of the designated trading platforms and complete the transaction through one of the following ways pursuant to Article 5(7) of Document 1044:

  1. Bilateral negotiation: The parties shall negotiate the quantity and price of GECs at their own discretion. They will sign a transfer agreement and complete the transfer through the trading platform.
  2. Listing: The seller shall release quantity and price information of GECs on the trading platform. The buyer can choose and buy the listed GECs.
  3. Centralized Bidding: Sellers and buyers shall declare their trading intentions through the trading platform before the deadline. The quantity and price of GECs will then be determined by means of market clearing.[3]

5. How Are GECs Traded Together with Green Electricity?

In August 2021, NDRC and NEA released the “Reply Letter on The Green Power Trading Pilot Work Plan.” After that, a series of supportive policies were issued on national and local levels.[4] The Pilot Work Plan and the supportive policies created the green electricity trading market, in which the GEC is bundled to the green electricity as the “identity card” of green electricity and is transferred to the buyer together with the electricity being sold. Through such Bundled Trading, the Bundled GECs provide clear evidence that the power customer bought and consumed the green electricity.

According to Article 5(9) of Document 1044, for green electricity trading through Power Exchanges, NEA shall forward the corresponding GECs in batches to the Power Exchanges. The Power Exchanges shall transfer the GECs along with green electricity according to the trading contracts. The trading contract shall specify the trading volume and price for both GECs and physical electricity.

Since GECs only covered onshore wind power and centralized photovoltaic power projects before the issuance of Document 1044, currently, only wind power and photovoltaic power projects can participate in Bundled Trading. It is expected that supporting implementation rules to Document 1044 may be issued to expand the scope of green electricity trading to cover other types of renewable energies.

6. How Are GECs Used in China?

  1. Accounting of renewable energy consumption

    The GECs may be used as the proof of renewable consumption to government agencies. Given GECs’ traceability, tamper-proofing, and accurate identification of renewable consumption, China’s National Bureau of Statistics and NEA rely on GECs to verify national and regional renewable energy power consumption data. Besides, renewable energy consumption is not subject to the total energy consumption and intensity control by the government agencies.

    In the future, the government may require high-energy-consuming enterprises to gradually increase the proportion of green power consumption, and GECs shall be used for calculating users’ green power consumption.[5]

  2. Certification of green electricity consumption

    According to Article 5(11) of Document 1044, China will establish certification standards and identification system for green electricity consumption using GECs as the only voucher for proving the power users’ green electricity consumption and certifying green attribute of their energy usage.

    Referring to the international common practice, Document 1044 requires the certification agency to carry out the certification based on GECs corresponding to the electricity produced within two years. In order to avoid multiple certifications of one GEC, the certification agency shall synchronize the certification information to the NEA in a timely manner.

7. How Does the New Policy Affect the Carbon Market?

In the carbon emissions trading market, the product being traded is carbon allowances or credits, representing the right to emit a specific quantity of greenhouse gases. If a company’s carbon emissions exceed the quota, it can purchase carbon credits or China Certified Emission Reduction (CCER), which can be used to offset against the quota.

Article 5(12) of Document 1044 provides that China will study and promote connection and coordination between GECs and China’s carbon markets (including carbon credits and CCER). In the future, GECs may be used for accounting carbon emissions in carbon markets.

8. What Should MNCs Choose – GECs or I-RECs?

According to Article 5(13) of Document 1044, “In principle, only domestic GECs may be applied for and issued for electricity generated by renewable energy in China”. While it’s unclear whether this means going forward one cannot apply International Renewable Energy Certificates (I-RECs) based on China-sourced renewable energy, most legal practitioners view that this provision would not have a retroactive effect. Therefore, I-RECs which have been issued prior to this rule should not be affected.

That said, the only entities that should consider buying I-RECs issued for existing renewable projects in China are those trying to meet international voluntary compliance programmes like RE100, as I-RECs currently are not acknowledged by the Chinese government and cannot be used for compliance with China’s Renewable Portfolio Standard (RPS). Moreover, Document 1044 makes it clear that “the GEC is the only proof of the environmental attributes of renewable energy in China” and “for the electric quantity corresponding to the GEC, no other certificate of the same nature may be applied for repeatedly in the power industry.” These resolve the potential double counting of environmental attributes across GEC, CCER and other certificate systems in China, and thus remove the obstacle to GEC’s compliance with RE100. Therefore, most commentators believe that China’s supply of I-RECs will decrease in the long term as more generators will choose to issue GECs under the scheme laid out under Document 1044.

For a brief comparison between GEC and I-REC, please refer to the Appendix.

Appendix

Comparison Between GEC and I-REC

GEC

I-REC

Issuing Authority

China National Energy Administration

I-REC Standard

Scope of Certification

Supports subsidized or unsubsidized renewable energy projects

Limited to unsubsidized renewable energy projects

Types of Renewable Powers

For existing hydropower projects before 2023, no tradable GEC will be issued temporarily

No limitation

Trading Restriction

Can only be traded once - no secondary market

Can be traded multiple times before consumption

Average Price

Subsidized GEC: prices are higher and subject to significant fluctuations, with a price range of RMB 120-800 per certificate.

Unsubsidized GEC: Most are around RMB 50 per certificate.

Mostly in the range of RMB 1-10 per certificate.

Whether can be Used as Carbon Resource

No, the linkage mechanism with carbon trading needs to be established in the future

Yes

International Certification

RE100 (conditional acceptance due to potential double counting)[6]

CDP, RE100, GHGP

Market Demand

Currently most transactions are conducted by Chinese parties.

Global transactions with global buyers including Fortune Global 500 companies and multinational corporations.

 

[1] Document 132 refers to “Notice on the Trial Implementation of the Renewable Energy Green Power Certificate Issuance and Voluntary Subscription Transaction System” (NDRC [2017] No. 132) issued by the NDRC, the MoF, and the NEA on January 18, 2017.

[2] Power Exchanges include national exchanges (Beijing Power Exchange Center and Guangzhou Power Exchange Center) and provincial exchanges.

[3] http://www.nea.gov.cn/2023-08/03/c_1310735436.htm

[4] Such policies include but are not limited to 《关于加快建设全国统一电力市场体系的指导意见》（发改体改〔2022〕118号）, 《关于促进新时代新能源高质量发展的实施方案》的通知（国办函〔2022〕39号）, 《关于做好2023年电力中长期合同签订履约工作的通知》（发改运行〔2022〕1861号）, 《促进绿色消费实施方案》（发改就业〔2022〕107号）, 《关于享受中央政府补贴的绿电项目参与绿电交易有关事项的通知》（发改体改〔2023〕75号）; 《南方区域绿色电力交易规则（试行）》（广州交易〔2022〕15号）, 《北京电力交易中心绿色电力交易实施细则（修订稿）》（京电交市〔2023〕44号）

[5] China’s Renewable Portfolio Standard (RPS) in 2023: https://www.ndrc.gov.cn/xxgk/zcfb/tz/202308/t20230804_1359101.html

[6] See RE100: Green Electricity Certificate (GECs) of China Technical Assessment Report | August 2020