China Green Electricity Certificates (GEC) FAQ

Abstract

This article provides a brief overview of the background and basics of the Notice on Regulations of GEC Issuance and Trading and how multinational corporations (MNCs) and other international parties may purchase and sell renewable green energy certificates in China. The market size and the government’s determination to promote clean energy is a key driving force to reduce global carbon emissions. Following the decades-only transition from a pilot program to national-wide implementation, we believe the GEC market will gradually become a mature market for MNCs to go green by encouraging clean energy production.

Introduction

Increasing the proportion of renewable energy in the overall energy mix is a crucial step toward achieving a substantial reduction in global carbon emissions necessarily to protect the environment and counter the effects of global warming and climate change. With the world’s second-largest population and the second-largest economy, China is home to a significant proportion of the manufacturing that supplies the MNCs that, in turn, supply the global economy. These MNCs, as well as other international investors and financial institutions, are increasingly focused on policies to ensure sustainability, carbon neutrality, and good environment, social, and governance (ESG). In turn, they are increasingly requiring their suppliers in China to do the same.

In recent years, China has made significant strides in developing renewable energy and in reducing emissions from traditional coal-fired power generation and other sources of carbon emissions. China has also prioritized developing the domestic market for trading renewable energy certificates as a means to incent the development and utilization of renewable, clean energy while providing parties a means to offset the carbon emissions associated with the use of electric power from traditional producers by purchasing renewable energy certificates. To this end, two months ago, the Chinese government issued new regulations that unify and rationalize the trading of renewable energy green electricity certificates.

This document provides a brief overview of the background and basics of the Renewable Energy Notice and how MNCs and other international parties may purchase and sell renewable green energy certificates in China.

1.What types of green energy are recognized?

Both the market in China and Chinese regulations recognise as “green energy” electric power generated from renewable energy projects, covering onshore and offshore wind power, solar power, hydropower, biomass power, etc.

2.What is the current regulatory framework for green energy certificates?

In addition to favorable tax treatment, feed-in tariffs, and other policies, the Chinese government has sought to promote the development and utilization of “green energy” through a regulatory framework to support the trading of green energy certificates. These certificates allow renewable energy producers to monetize their production while providing other consumers with a means to offset the use of electric power from traditional power producers.

China’s National Development and Reform Commission (NDRC), Ministry of Finance, and National Energy Administration (NEA) jointly issued the Renewable Energy Notice on July 25, 2023. The Renewable Energy Notice provides that Green Energy Certificates (GECs) are the only proof of the environmental attributes of green energy electricity and, as such, the only evidence for recognizing the production and consumption of green energy electricity. One GEC unit corresponds to 1,000 KWH of green energy power. The NEA, as the key regulator, is responsible for the issuance and management of GECs.

Subject to the physical delivery of green electricity, GECs are either bundled with green electricity delivery or unbundled and thus traded independently of the actual green electricity. Limited by the geolocation of renewable energy projects, compared with direct consumption of green energy, it seems much more convenient to use an unbundled GEC trading system for multinational companies or their suppliers to go green. That said, we do notice that some leading companies, such as Apple and Nike, are, in fact, investing in renewable energy projects directly, and Apple even goes further to launch a China Clean Energy Fund to support renewable energy projects nationwide.

3.Is the purchase of GEC mandatory?

Purchases of GECs are on a voluntary basis. However, China has set mandatory compliance targets for certain energy-extensive consumption industries, like electrolytic aluminum, which are implemented by provincial governments after considering actual power production and consumption in each province. To be compliant, such enterprises need to purchase green electricity (EAC) or build self-consumption green energy projects.

4.Where are GECs traded?

According to the Renewable Energy Notice, GECs can be purchased only on three government-designated trading exchanges: the Green Energy Purchase Platform, the Beijing Power Exchange Centre, and the Guangzhou Power Exchange Centre. The Renewable Energy Notice does not permit buyers to enter into agreements with green energy producers for the purchase and sale of GECs outside of these three exchanges. Subject to the development of GEC trading, it is likely the Chinese government will authorize additional energy exchanges to participate in GEC trading.

5.May a foreign-incorporated company purchase and retire GECs in China directly?

No. Only entities organized in the PRC are qualified to purchase GECs. This includes wholly foreign-owned enterprises (WFOEs) and Sino-foreign joint ventures. Therefore, for a foreign company to maintain a certain level of visibility and control over the purchase of GECs, it may request:

its PRC suppliers to purchase and retire GECs directly by providing proof, as each GEC has a unique serial number that is easy to verify its authenticity.

6.Can the parties freely negotiate purchase prices over specific GECs?

According to the Renewable Energy Notice, the parties are allowed to “freely negotiate the price” of specific GECs.

7.Can a buyer re-sell/transfer GEC?

No, according to the Renewable Energy Notice, GEC is only allowed for one-off trading so far and cannot be resold or re-transferred to any other parties.

8.Can the device owner apply for the GEC or other EAC/carbon offsets instrument repeatedly?

No, according to the Renewable Energy Notice, the corresponding electricity used for the application of GECs cannot be applicable for other environmental attribute instrument applications.

9.Can subsidized plants be applied for GECs?

Yes, regardless of any subsidy or not by the government, the devices are allowed to apply for GECs. However, such producers have to give up a portion or all of their subsidy corresponding to the GEC value. The economic benefits or returns will be the driving force for such producers to decide their participation in GEC trading. Meanwhile, unsupported plants are eligible to apply for GECs. Buyers can recognize the status (government-subsidized/unsupported) via the final certificate(s). In China, starting from 2022, almost all the devices(operated/in construction) are unsupported projects.

10.What is the process for buying GEC, complicated or not?

It is very simple and easy to buy GEC from us. Only device owners and qualified & officially approved agent dealers are allowed to conduct the GEC trading/retirement on the 3 Chinese official platforms. GECs traded or retired in any one of these 3 platforms are treated as equivalent by the government. We, SECO, are a qualified and officially approved agent dealer in the Guangzhou Power Exchange Centre(GPEX) which is one of the 3 official platforms. This platform is the simplest and the most efficient platform for trading GEC, no matter for end beneficiaries or millde traders. For end beneficiaries, just contract with us on the volumes, price, and delivery then disclose the company names, registration numbers, and contact numbers(if any) so we can launch the retirement accordingly, and around 2-5 business days we can obtain the retired certificates as required. For middle traders, just contract with us back-to-back on the volumes, price, and delivery date then disclose the end beneficiaries’ name(s), registration numbers, and contact numbers(if any) so we can launch the retirement accordingly, and around 2-5 business days we can deliver the retired certificates as required.

11.Can the GECs be attributed geographically?

Yes, they can. If the end beneficiaries or middle traders want the GEC’s environmental attributes to be attributed to a designated provincial region geographically, like Shanghai\Beijing\Guangdong\Jiangsu\Zhejiang, etc., we can choose the attribution province\region while retiring, regardless of the project located in any region of China.

12.What is the sample of GEC, and what kind of information will be displayed on it?

Here is an authentic GEC retired by SECO for a customer out of the Chinese mainland. On the certificate, it only displays details as presented below, with no more information like consumption period\reporting period\reporting purpose\notes, etc. presented as I-REC.

If you have more queries or doubts mentioned or not mentioned above, please contact us directly and freely.