Sunday read: What to expect from China’s green power trading


From pv magazine 11/2021

Put simply, China’s newly launched green power trade market allows power consumers to buy “green” electricity, such as that generated by wind and solar, directly from generators through an open market. In China, the former structure of the national power market only offered transaction services for conventional energy, which is predominantly coal-fired. Renewable energy was not guaranteed by the national grid operator and was not freely traded between producers and consumers. With this green power trade market, green power will now be further commercialised.

Sellers, buyers

The first permitted sellers are wind power and solar PV generators. Those developed under government subsidy programs will be incorporated into the trading market as a secondary priority. The next stage of the market is to extend the green power scope to hydropower, itself another large producer for energy-hungry China.

The first buyers of green power are primarily expected to be commercial enterprises looking to reduce carbon emissions in their daily operations. With the increasing emergence of the devastating impacts of global warming in China, more and more companies are showing an interest in renewable energy.

On the first trading day of the market, several multinational companies including BASF, Covestro and Schneider Electric signed green power purchase orders worth some 1.53 TWh with wind and solar power suppliers in the Ningxia Hui Autonomous Region for five years of electricity supply – fulfilling 88% of their total power demands.

Market design

Like most major infrastructure in China, the green power trade market was designed and built by the Chinese government, or some of its major economic extensions, including State Grid and Southern Power Grid.

Based on the existing national power market, China’s top planning regime, the National Development and Reform Commission (NDRC), together with the National Energy Administration (NEA), initiated a research project several years ago to conduct a trial of green power trading at the provincial level.

The NDRC and NEA realised that more and more enterprises are willing to pay additional costs for green power. The organisations also know that new technologies such as blockchain can help to comprehensively record green power production, transactions, and consumption, and make them more traceable. Because of this, they jointly promoted the market’s launch to cover 17 provinces with active green power activities. The trading activities are aligned with China’s peak carbon and carbon neutral targets, as has been expressed by the country’s leadership.

However, the two national grid companies, State Grid and the Southern Power Grid, have been tasked with the responsibility for establishing the enabling market facilities, including the location of facilitating infrastructure, hardware and software.

Market location

Currently China’s green power market consists of two separate, parallel centres – one located in Beijing, under the leadership of Beijing Electric Power Trading Centre, and the other in Guangzhou, under the leadership of Guangzhou Electric Power Trading Centre. The former is a subsidiary of China’s State Grid, and the latter belongs to China Southern Power Grid.

China State Grid is the nation’s major grid company and also the world’s largest power network operator. The grid connects 88% of the country and serves a population of more than 1.1 billion. All green power traded in its scope will be handled in the trading centre of Beijing. China Southern Power Grid is the other national grid, which covers five provinces and a total population of more than 230 million. All green power transactions in the five provinces it covers will be traded in Guangzhou.

CGN New Energy, as one of the largest green power producers of China, has signed long-term sales contracts with multinationals such as Shell, Yili, Tencent and Linde Group, to secure 1.97 TWh of future output, of which 1.25 TWh was traded in Beijing and the rest in Guangzhou.

Trading modes

There are two major trading modes in the market at this initial stage. The first is the direct deal between power maker and power consumer, essentially a power purchase agreement (PPA). Several methods, including bilateral agreements, or a purchase under auction, are offered to both the buyer and seller to effect such a direct transaction.

The second trading mode is via the two national grid companies. Under this model, the State Grid in Beijing and the Southern Power Grid in Guangzhou plays the role of the sole market operator and will provide purchase or sales services to the green power generators to all market participants. The grid company will provide green power not only purchased in the market, but also purchased outside the market, and will even include subsidised green power from specific provinces if there is not too much grid-parity green power available on the market. Buyers can purchase green power from the sole market maker through a bidding system.

What is the price?

With the commercialisation of green power via the market, the environmental value (ENV) of green power is recognised. The green power that has been traded on the market since its commencement has been approximately 5% to 10% above conventional power prices. This extra cost gives the buyer utilisation of green power to fulfil their social responsibility commitments while compensating solar and wind developers in lieu of government incentives.

How green is ‘green?’

For every transaction of green power in the market, the buyer will get a Green Power Consumption Certificate jointly issued by the trading centre and China State Grid’s Blockchain Identification Centre. The certificate, which utilises blockchain technology, records all information related to the generation, transmission and trading of the green power and, by virtue of the blockchain, can’t be modified by any single party. This certificate takes the place of so-called “Green Cards,” which used to be a proof of green power purchase under the former mechanism.

The green power trade market will establish a direct channel for the purchase of energy that is generated by China’s massive wind and solar fleet, which had faced serious curtailment issues in recent years. With ambitious plans to install 60 GW to 100 GW of renewable energy in each of the next five to 10 years, there were fears installations would have been curtailed if the green power market hadn’t provided offtake opportunities.

What is more, direct green power trading encourages those enterprises with carbon emission reduction needs to join in the production chain of green power and provide capital to solar and wind developers. This greatly reduces the economic burden that the Chinese government has borne in subsidising the production of green power. Many of China’s state-owned conventional energy companies stand to benefit from the market since they are transiting their production portfolio away from fossil fuels to green power anyway.

Bigger picture

In 2020, China consumed 7,511 TWh of electric power. On the first trading day of China’s green power trade market, around 80 TWh of green power was traded. This accounts for only 1.1% of the country’s electricity demand. However, it was a good start.

With more and more green power generated in the world’s biggest power consumer, the green power trading market will play an increasingly important role in balancing cost and price, production and consumption, and demand and supply of China’s green power.

Author: Vincent Shaw

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