Corporate Net Zero pathways: the role of market mechanisms for new energy development during the 14th FYP

In June, the National Development and Reformation Commission (NDRC) released the Chinese Renewable Energy Development 14th Five Year Plan (FYP). Throughout 10 chapters, the document elaborates on different aspects ranging of new energy development from deployment plans, supply chain, marketization, RE utilization, to international cooperation. The purpose of this article is to provide a tentative interpretation of the market-based mechanisms that will be used to promote new energy development during the 14th FYP.

Large-scale energy bases and distributed new energy will be simultaneously developed

To achieve the long-term goal of non-fossil energy representing 25% of primary energy consumption in 2030, China’s renewable energy development plan includes several targets:

The 14th FYP reiterates the planning and construction of the 7 large-scale new energy bases in the inland areas and 5 large-scale offshore wind bases in the coastal provinces. In addition, the strategic plan underlines the new development of distributed wind and solar energy.

Key initiatives of distributed new energy include:

1. Distributed solar power:

  • 50% of the new-built industrial parks and public facilities will be equipped with distributed solar power generation
  • “PV+” hybrid utilization will be promoted, e.g. agri-PV, aqua-PV, etc.
  •  Select 1000 villages for distributed solar development demonstration

2. Distributed wind power:

  • Promote distributed wind development on at the county level.
  • Promote development in 10000 villages and 100 counties.

Regarding project allocation, market-oriented competitive allocation will be the major mechanism for project development during 14th FYP.

Top-down RPS system will be stringently implemented to steer RE consumption

The concept of “full amount purchase”(全额收购) of renewable energy specified in the Renewable Energy Law has been reiterated. The Chinese RPS system will be further strengthened to promote renewable power consumption. All market participants shall bear RPS targets on a fair and reasonable basis. Captive power plant power users and market-based power users shall proactively utilize renewable power.

A trio-collaborative power off-taking structure is taking shape

Power grid, renewable power generators, and power users (网、源、荷) shall collaborate to enhance renewable power consumption. A trio-collaborative-mechanism will be set up to support renewable consumption.

1. Power grid-guaranteed purchasing:

  • The current guaranteed purchasing by the power grid will be further integrated with market trading. The proportion of market-based trading will be gradually increased. The power generation beyond grid-guaranteed purchase hours will be fully sold to the market.

2. Power grid-guaranteed purchasing:

  • A power transmission and distribution pricing mechanism (wheeling charge) in favor of distributed power and renewable consumption will be implemented.
  • Improve distributed power trading mechanism, standardize transaction process, enlarge transaction volume.

A series of measures to encourage power user’s direct utilization of distributed new energy have been specified by NDRC:

  • Establishing private power wires between power user clusters (e.g. data centers, industrial parks, big factories) and new energy projects according to local conditions.
  • Build up captive new energy power stations
  • Green power replacement of captive coal-fired power plants

3. Renewable energy market trading

  • Improving renewable energy market trading rules and regulations and demolishing market and administrative barriers, to promote fair competition with traditional fuel, with recognition of renewable attribute at the same time
  • Improving the market mechanism of renewable power participating in power spot market
  • Promoting multiple-year PPA
  • Encouraging power users to sign procurement contracts directly with inter-provincial power generators.

Stabilization of returns on investment

Through technological progress and cost reduction, as well as improvement of the market-based pricing mechanism of wind and solar, returns on investment would be stabilized.

In parallel, a power transmission and distribution pricing mechanism in favor of distributed power development and renewable energy development will be strengthened.

Green Electricity Certificate (GEC) will be reinforced in the Green Product certification mechanism

GEC’s identity representing green power consumption will be underscored. The issuing scope of GEC will be expanded. GEC price will be decided by the market. Integration of GEC with RPS mechanism and carbon trading will be improved. A GEC-based mechanism to certify green power consumption will be used for Green Product certification mechanism.

The government will increase the certification of green power-consuming products, encourage new energy equipment manufacturing, automobiles, IT, and other enterprises to increase the proportion of green energy use. Green power consumption requirements in the fields of industry, construction, transportation, and public institutions will be raised. Government procurement policies will be adapted to support renewable energy consumption.

Conclusions

During the 14th FYP, China’s wind and solar power generation will be doubled against the 2020 baseline and the total capacity of wind and solar will likely surpass 1000GW by the end of 2025.

Other than the construction of large-scale new energy bases and the enhancement of inter-regional/inter-provincial renewable transmission, the importance of distributed power and the promotion of its consumption by local and adjacent power users are once again emphasized.

The return on investment of new energy projects will be stabilized as renewable power consumption will be extensively promoted by the Chinese government and the green attribute of new energy will be recognized, while more and more new energy projects are competing with other traditional power sources in power market trading. #

Share this article: