China publishes new rules for green power trading

Author: Anders Hove

Wind and solar are now competitive with coal in many world regions, but their position in the market depends on market design. One approach gaining traction in China is green power markets. Recently, the Guangzhou and Beijing Power Exchange centre have each issued rules of green power trading—Guangzhou in February and Beijing on May 23. In both cases, they are aimed at wind and solar PV, though other renewables may meet the criteria, such as energy storage. Distributed energy could also be encouraged to participate.  

Both rules are aligned with an August 2021 policy from NEA and NDRC outlining green power trading pilots.  The rules also closely resemble the Beijing trading centre’s initial day of green power trading in September 2021, in which wind and solar plants sold multi-month and multi-year contracts across provincial boundaries. In that case, the Beijing trading centre announced that contracts were on average priced RMB 0.03-0.05/kWh above coal power prices—which was just before a major power shortage that resulted in many provinces hiking grid tariffs by up to 20%.  

Like those contracts, these power trading rules generally apply to the excess electricity production beyond that already guaranteed to be absorbed under longstanding rules on guaranteed minimum purchase of renewable energy. For example, Liaoning province has minimum wind purchase obligation of 1850 hours, and 1300 hours for solar PV, which represents a capacity factor of 21% for wind and 15% for solar. If a solar PV facility has sufficient sun to produce 1450 hours, they could sell those 150 excess hours on the market.

Wind or solar plants could sell electricity already guaranteed for purchase—but in that case they would forfeit any feed-in tariff or long-term contract arrangement, such as 20-year grid parity contracts. Thus, plant owners would likely only enter into such an arrangement in exchange for a price premium. 

Even for excess hours beyond guaranteed purchase rules, wind and solar plants have other options for selling output besides the green power markets. Last fall, NDRC and NEA issued a policy on interprovincial power trading that specifies that renewable energy and coal should participate openly in interprovincial trading—which would presumably favour clean energy, with its low marginal costs. Further, another recent policy on encouraging green power consumption specifies that grid companies should publish the times of day when green power is available, and the curve of production, to encourage consumers to purchase—possibly from the grid company, or directly from generators.  

The NDRC’s 2021 pilot policy encouraged market participants to sign mid-to-long term contracts for 5-10 years. The Beijing rules describe a range of potential contract durations that might be traded in the market: weekly, 10-day, monthly, multi-month, yearly, and multi-year.  

Neither of the two trading centres has specified how frequently trading will occur, where information will be available about prices, or whether volumes and prices will be publicly available. It is possible only those specially invited will be able to participate initially, as was the case last September. The NDRC’s green power trading pilot document suggested monthly or annual trading. Buyers can also purchase green electricity certificates directly from the grid companies via the exchanges. And since provinces and grid companies still face policy mandates to minimize curtailment and minimum annual quotas for renewable energy purchase, wind and solar plant owners will likely find grid companies willing to snap up some excess production. (Provinces can meet the renewable obligation by purchasing green certificates, potentially linking the markets.)

This implies that green power trading via the exchanges may account for only a small slice of green energy output, which can help explain why renewable generators may continue to ask for a premium for such output. 

In the context of the recently-released five-year plan for renewable energy, green power markets may play a larger role in promoting renewables in the future, but the relative importance is still unclear. China’s wind and solar targets (for wind and solar to reach an 18% share of electricity by 2025) have ample upside potential given the likely growth trajectory of wind and solar capacity installations. Arguably, by setting targets that are already on track to be surpassed, and setting mandates such as the provincial RE quotas at achievable levels, this could push more RE onto the market. Much will depend on the perceived transparency, efficiency, and openness of the green power exchanges. Further development of provincial spot markets and inter-provincial markets, as well as successful piloting of local trading of distributed energy, would undoubtedly also help the competitiveness of green energy. 

About the author:

Anders Hove is the project director of the Sino-German Energy Transition Project, implemented by GIZ, commissioned by the German Federal Ministry for Economic Affairs and Climate Action (BMWK). This article reflects the personal opinions of the author.

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