China’s Renewable Energy Quotas

By Yuanchao Xu 16 August, 2018

CWR's Xu explores the new quotas & Renewable Energy Power Certificates (REPCs); what impacts will they have?

Last year, China piloted an alternative for the heavily burdened renewable energy subsidy system – the green power certificate (GPC), which is a voluntarily-traded digital certificate for every MWh of on-grid non-hydro renewable energy (see our review of GPCs here). Its impact, however, has been limited.

Limited impact from GPCs…

…only 20,000 out of 8mn available sold during the first 4 months

Researchers from Jiemian (a public research platform) have analysed the purchase of GPCs and found that only 20,000 out of 8 million available GPCs were sold during the first 4 months of implementation. Plus, interest from state-owned enterprises (SOEs) has been low. Among the big GPC purchasers (over 100 MWh), only 6% were SOEs while the rest are all private-owned enterprises. A lack of public promotion and incentive policies for enterprises may be the reasons why GPCs have remained unpopular.

The large number of GPCs issued (8 million) clearly shows renewable energy enterprises want to sell their energy to receive liquidity to grow and so China is now tackling the problem with a new renewable energy quota system and an upgraded version of GPCs.

China’s first renewable energy quotas coming out as expected to help stimulate the market

The pilot notice for GPCs already stated that a renewable energy consumption quota system and the mandatory purchase of GPCs may be initiated in 2018, and both are coming into fruition as expected with the National Energy Administration (NEA)’s consultation paper on ‘Renewable Energy Power Quotas and Assessment Methods’.

Provinces have to meet both a total renewable energy quota & a non-hydro renewable energy quota by 2018 & 2020

This paper aims to develop renewable energy by allocating two types of provincial quotas for 2018 and 2020 – a total renewable energy quota and a non-hydro renewable energy quota. Provinces have to meet both these quotas, which vary depending on location, energy structure, and renewable energy capacity. For instance, Sichuan has the highest total quota of 91% for 2018 due to its abundant hydro-power resources, while Qinghai and Ningxia have the highest non-hydro quota of 21% for 2018 due to their substantial wind and solar resources.

Some provinces need to add or buy more renewables…

…others have already exceeded the quota

The chart above shows the renewable energy quotas for 2020 by province split by hydro and non-hydro. The existing share of renewables in the province’s power mix is also shown. For some provinces, there are clear opportunities to add or buy more renewable energy to meet the quota. Hunan, for instance, has 50.4% of its power mix from renewables currently but this share has to reach 56.5% by 2020.

Some provinces, however, have already exceeded their quotas. Yunnan, for example, has 85.6% of its power mix from renewables currently but the quota only requires this share to be 70% by 2020. Many of such provinces have a high share of hydropower (e.g. Yunnan, Tibet, Guizou) and may still have to develop non-hydro renewable energy.

Upgraded renewable trading to help provinces meet quotas & provide enterprises with more liquidity

To help provinces and enterprises meet these quotas, a new Renewable Energy Power Certificate (REPC) scheme which can assess the production, consumption and trade of every MWh of renewable power has been proposed. As such, target enterprises can either self-generate renewable energy or purchase renewable energy through REPCs from other renewable energy enterprises. To complement the quota system, REPCs are also differentiated into hydro-power REPCs and non-hydro REPCs.

But how do the new REPCs differ from the old GPCs? Simply put, the REPC is an upgraded version of the GPC, covering a wider range of renewable energy with a more marketised price. In addition, unlike the GPC mechanism which mandates that enterprises either sell GPCs or obtain renewable subsidies for liquidity, the REPC system allows enterprises to both sell REPCs and obtain subsidies, thus providing more income to renewable energy enterprises. While REPCs do not replace GPCs, they are a much needed upgrade given the limited impact of GPCs.

 The REPC is an upgraded version of the GPC…

…covering a wider range of renewable energy with a marketised price

Failing to meet the renewable quotas can bear high costs

Multiple stakeholders are involved to ensure the successful implementation of the quota system. Local governments are in charge of setting local quotas for provincial electricity grid enterprises and other electricity-consuming enterprises. Enterprises with in-house coal-fired power plants will likely be assigned a higher quota than the local quota.

Failing to meet the renewable quotas can bear high costs for different parties, as they may face punishment(s) as set out below:

a)     For provinces:

• fossil energy constructions will be suspended or reduced;
• high energy consuming projects will be limited; and
• will be disqualified from applying for demonstration projects.

b)     For target enterprises:

• electricity trading quotas for the next year will be reduced;
• will be disqualified from electricity trading the next year; and
• will be listed in bad credit records.

Although the quota system is only drafted in a consultation paper for now, it is unlikely there will be substantial changes when the final paper is released. Going forwards, it is expected that a strong quota system and an improved trading system can help renewable energy become a more competitive power source.

Further Reading

• Audit! Yangtze River Economic Belt – China’s first ever basin-wide environmental audit on the Yangtze River Economic Belt is an unprecedented step towards balancing economy & environment. China Water Risk’s Woody Chan shares the good and not so good findings
• Upper Yangtze: Integrated Water Management & Climate Adaptation – Experts from China & Switzerland introduce their joint project to enhance water management & climate adaptation in the Jinsha River Basin. What lessons have been learned & what is next?
• 3 Things You Need To Know About Hunan – Hunan connects provinces from the Yangtze’s upper to lower reaches – an important position. Check out 3 key things to know about Hunan as China develops the Yangtze River Economic Belt according to China Water Risk’s CT Low
• Sharing Rivers: The Lancang-Mekong Case – Using the emergency water release by China to help downstream countries in the Lancang-Mekong River Basin as an example, Tsinghua University’s Prof. Zhao Jianshi explores the benefits of cooperation & the importance of China
• Financing Green Infrastructure In The GBA: Key Takeaways – The Greater Bay Area accounts for 12% of China’s GDP but climate change means this is at risk. How can green finance help? China Water Risk’s Dharisha Mirando shares key takeaways from the HKUST conference

• GPC: Smart Subsidies For Renewables – China’s current subsidy system for renewable energy is overburdened. However, China Water Risk’s Yuanchao Xu sees positive change ahead with the recent initiation of Green Power Certificate trading
• Rising To The Water Challenge – Barclays analyst Zachary Sadow shares key findings from their report with the Columbia Water Center on how US energy companies and public utilities can help alleviate water shortages through new tech and practices
• Water Flows In China’s Grid – Embedded water is everywhere and that includes electricity. China Water Risk’s Hubert Thieriot on recent findings that show how and where virtual water flows through the grid. Will this change how China’s grid develops?
• Wind & Sun: Relief For China’s Dry North – China’s North is parched but is home to a significant amount of coal reserves & arable land. Can wind & solar power help bring relief? CWR’s Thieriot on how but be warned, challenges remain
• Unconventional Water For Power Generation – The power sector is China’s largest industrial water user & is also exposed to water stress. Unconventional water sources such as mine water & municipal wastewater can help with this. China Water Risk’s Thieriot explores these sources
• Rise of ZLD In China’s Power Sector – Treating air pollution in thermal power plants create hard-to-treat wastewater as a by-product: is zero liquid discharge the way forward? Bluetech Research’s Rhys Owen expands