【Unveiling RE100 Roadmap: The Way to 100% Renewable Electricity in China】
Going ‘100% renewables’ will mark a key milestone for many industry leaders to drive the renewable energy transition and contribute to the shift to a low-carbon economy.
In November 2020, The Estée Lauder Companies (ELC), one of the world’s largest prestige beauty companies, announced that it has reached a milestone climate goal to source 100% renewable electricity globally for its direct operations.
Back in 2017, ELC has joined RE100 and committed to secure 100% renewable electricity. Other than ELC, many large companies also set their sights on achieving ambitious climate goals like RE100 to accelerate the global emission reductions. RE100 (RE stands for renewable electricity) is a global initiative that corporates with the most influential business around the world to become 100% powered by renewables. By far, more than 300 companies, including Apple, Google, Unilever, and H&M, have made their commitments under the initiative. To join RE100, companies need to set a public goal to source 100% renewables for their worldwide operations.
RE100 is led by The Climate Group and in partnership with CDP
How to achieve RE100? In particular, how to achieve RE100 in China? For many multinational companies, China is one of their largest and highest-impact markets, and thus, achieving RE100 in China will be a huge milestone in their global RE100 journey. As highlighted by RE100 members, however, China was identified as one of the most challenging markets for achieving 100% renewable electricity, due to regulatory complexity, renewables unavailable for sourcing in some regions, etc. Although RE100 has published an official guide on a list of options to reach 100% goal, country-specific studies are essential as the access to renewable electricity varies country by country.
This article aims to provide businesses around the world with an overview of the three major approaches to achieve RE100 in China, via analysing the current landscape of the renewable electricity market in China and the implications of China’s recent energy policy announcements on reaching the ‘100% renewables’ goal. (If you like this article, please also refer to our comprehensive analysis report "China’s Power Market and Green Electricity Trade" in our database. )
Seven available sourcing methods to achieve RE100
To achieve RE100, a company may choose from the following methods.
Currently, on-site renewable generation is the most mature way to generate and consume renewable electricity in China. However, it is difficult to reach scalability to realise 100% consumption alone.
Direct transmission from off-site generators
A company may procure renewable electricity directly from generators without transmitting it to the central grid. Such off-site direct transmission usually requires relatively high initial investment to construct the transmission infrastructures.
Power Purchase Agreement in the centralised market
A Power Purchase Agreement (PPA) is an agreement signed between a purchaser (the company buying the electricity) and a renewable electricity generator. Through a bilateral contract, a generator can transmit renewable electricity to a specific purchaser via the central grid with transmission approvals from both Power Exchange Center and Power Dispatch Center, under government regulations and the allocations of transmission capacities. (To read more about green power trade: 【China’s Green Electricity Pilot Trade In a Nutshell】)
Figure 1: A company may sign a PPA in the centralised market and receives electricity from the central grid
Source: Integral analysis
Power Purchase Agreement in the distributed market
In the distributed market, a company may receive electricity from the independent grid or public distributed networks. Currently, the distributed market is still at the pilot stage in China. It may further develop and could potentially be a supplementary way to other methods.
Figure 2: A company may sign a PPA in the distributed market and receives electricity from the independent grid or public distributed networks.
Source: Integral analysis
Figure 3: The distributed markets only available in some areas of the highlighted provinces below.
Compared with a PPA, where both the electricity and the attribute of the generation would be delivered to the purchaser, only the attribute would be delivered to the purchaser in a VPPA. While enjoying the normal electricity supply from the central grid, a company can purchase the corresponding amount of renewable energy attributes equal to its consumption amount of electricity from a specific generator to claim its renewable electricity attributes. By far, practices of VPPA are unclear in China.
Figure 4: A company may sign a VPPA and purchases the corresponding amount of renewable energy attributes, such as Green Electricity Certificates.
Source: Integral analysis
Unbundled energy attribute certificate
A company may purchase unbundled certificates separately from the electricity to match with its electricity consumption from non-renewable sources. Green Electricity Certificate (GEC) and International Renewable Energy Certificate (I-REC) are the two major certificates available in China. While normally purchasing electricity from the central grid, a company may purchase the corresponding amount of GEC to its consumption amount from a specific generator. Since March 2020, GEC has been approved by RE100 under certain conditions to achieve 100% renewable electricity in China. I-REC is also one of the official methods to achieve RE100.（To read more about Green Electricity Certificate in China:【What is the Green Electricity Certificate in China? Will it Lead to New Opportunities? 】)
Figure 5: A company may purchase GECs via the government official platform while enjoying the electricity from the central grid.
Source: Integral analysis
Green electricity product / Green tariffs
A company may purchase green electricity froma specific source of renewable energy based on a utility contract with an electricity supplier, such as a grid company. However, the purchaser may not be able to procure from a specific renewable generator, given that the renewable electricity is transmitted through the central grid.
Comparing with GEC, green electricity product / green tariffs has a similar purpose of reducing Feed-in-Tariff subsidies from the government. In this case, renewable projects that are eligible to issue GECs will not receive green tariffs. They may otherwise receive double subsidies. Currently, green tariffs of hydropower could be negotiable with grid companies, given that only large-scale onshore grid-connected wind and solar PV projects will be able to issue GECs.
Figure 6: A company may sign a utility contract with a grid company to purchase green electricity from a specific source of renewable energy, such as wind or solar power.
Source: Integral analysis
Opportunities and challenges: Three major sourcing approaches to 100% renewable electricity in China
Although RE100 has listed several options for a company to realise 100% renewable electricity, not every option is practical and feasible in China due to government regulations and market immaturity. In this section, we will discuss three major sourcing methods to achieve RE100 in China, Self-generation, Power Purchase Agreement, and Green Electricity Certificate.
Self-generation is the very first step for many companies to embrace the renewable energy transition in the short-term
Self-generated electricity, particularly solar photovoltaic (PV), is a common option for a company to consume renewable electricity. It is also the very first step for many companies to transition part of their electricity consumption from non-renewable to renewable sources in the short term.
Till 2020, H&M, the international fashion retailer, has installed rooftop solar PV at its 13 factories across China, with a total capacity of around 10 megawatt-peak.
In 2019, AB InBev, the world’s largest brewer who joined RE100 in 2017, has installed a 2-MW rooftop solar PV system at one of its plants located at Yunnan Province, southwest China. The generated electricity from the solar PV would be supplied to AB InBev during the whole lifespan of the plant, according to estimations.
Rooftop solar PV installation at AB InBev in Yunnan, China
Source: Asia Clean Capital
Although self-generation is a relatively direct and effective method to consume renewable electricity, the electricity amount generated from on-site solar PV is too small to cover office or factory consumption, which remains as the biggest drawback for self-generation. Therefore, a company may need to add other methods to its renewable electricity portfolio for the rest of its consumption. Besides, self-generators are obligated to meet the renewable electricity consumption targets under the system of Renewable Energy Portfolio Standard (RPS).
PPA is a long-term and large-scale option, but with some limitations under the government regulations in China
A company may choose to sign a long-term PPA with a specific renewable generator on producing a large-scale of renewable electricity. Some limitations may need to take into consideration when signing a PPA in China.
1) The tradable amount of PPA on wind and solar power are limited in some provinces since it highly depends onthe Guaranteed Procurement of the Minimum Annual Utilisation Hours (最低保障收购年利用小时数). In provinces experiencing high curtailment rate, National Development and Reform Commission (NDRC) and National Energy Administration (NEA) have co-implemented the Guaranteed Procurement of the Minimum Annual Utilisation Hours to reduce the curtailment rate, where a minimum amount of electricity from wind and solar would be procured by the grid companies. In other provinces, all electricity from wind and solar would be procured by grid companies in the principle of Priority Generation Plans (优先发电优先购电计划), and thus few spaces have left for private companies to participate in the power market.
Figure 7: Provinces with the minimum Guaranteed Procurement of electricity from wind and solar are mostly located in the north and north-east China, while in other provinces, all electricity from wind and solar would be procured by grid companies.
Source: 国家能源局.2020.05.06. 2019年度全国可再生能源电力发展监测评价报告
Figure 8: Estimated tradable operation hours of on-grid wind and photovoltaic power plants are assumed to be available in some provinces in the north and north-east China, whereas few tradable hours are left in other provinces.
2) It may be difficult for a private company to engage in an inter-provincial PPA, given that inter-provincial power trade mainly happens in two scenarios, between generators and provincial grid companies, or between provincial grid companies located in different provinces. Furthermore, the market-based inter-provincial power trade may have several restrictions under the policy of Principals of Inter-provincial Power Trade. Firstly, the inter-provincial power transmission is relied on administratively set capacity targets to guide the country’s power transmission sectors. Secondly, renewable power is preferably to be consumed within provinces/regions based on the local electricity demands. Thirdly, the inter-provincial transmission amount of renewable electricity is constrained by limited UHV transmission infrastructure. Last but not the least, the fluctuating wind and solar power generation would adversely affect the safety and stability of the power supply between provinces.
3) A company may bear the risk of unstable electricity supply in the case of an emergency, since once the company joins the power market, it cannot enjoy the utility electricity supplied from the grid companies to guarantee its electricity demand. Otherwise, there would be potential risks in managing the power balance. Furthermore, to maintain the market stability, it is also not allowed for a company to exit the market without permission, unless the company is ill-performed, or the national policy or the power network changes, according to the temporary policy of Principal of Mid and Long-term Power Trading (电力中长期交易基本规则).
4) A company should fullfill its obligations to achieve its RPS targetsif it joins the wholesale market and purchases renewable electricity directly from the generators. Alternatively, if the company chooses to purchase renewable electricity from retailers, the retailer would become the obligated entity. However, there may be a risk for a company to make a credible usage claim to achieve RE100 in the case that the retailer also claims its usage on the same amount of renewable electricity to achieve its RPS targets.
Although the tradable electricity amount and other regulations limit the PPAs on wind and solar, hydropower PPAs could be a potential option, as the Guaranteed Procurement of Renewable Electricity Generation only applies to electricity from wind and solar power. In other words, a private company may purchase electricity from hydropower, especially from Sichuan or Yunan Province with rich hydropower resources to meet its electricity demand. One thing to be noted is that, once the company joins the wholesale power trade market, it is obligated to achieve both the total and non-hydro RPS targets. Thus, other than hydropower, the company still has to procure electricity from wind and solar power (or the corresponding amount of GECs) to achieve its non-hydro RPS target.
GEC has been admitted as an official method to achieve RE100, while under certain conditions to avoid the double-counting issue
The Chinese Green Electricity Certificate system was launched as a pilot program in 2017 with a primary purpose of reducing Feed-in-Tariff (FiT) from the government via driving a market-based mechanism. Currently, there are two types of market for GECs, the compulsory market and the voluntary market.
In 2019, the NDRC and NEA co-announced the policy of Guarantee Mechanism of Renewable Electricity Consumption (可再生能源电力消纳保障机制) - a benchmark RPS that has become effective in 2020. Under this system, an obligated entity has to purchase GECs to meet its RPS targets. In the voluntary market, buyers can demonstrate their support for renewable energy via GEC purchase and fulfill voluntary targets.
Figure 9: Simplified mechanism of two options for an obligated entity who under-achieve its RPS targets
Source: Integral analysis
Since March 2020, GEC has been admitted by CDP, RE100’s technical partner, to make credible claims by its buyers to achieve RE100 under certain conditions due to the potential issues of double-counting in the GEC and RPS system, and may therefore result in double-claiming issues. According to RE100 criteria, a company has to guarantee exclusive claims on either its attributes or electricity as renewable. Once the company fails to do so, it may not be able to satisfy the RE100 criteria.
Taking one of the obligated entities of the RPS system, grid companies, as an example to further explain the double-counting issues. When a grid company is obligated to consume a certain amount of renewable electricity to meet its RPS, the electricity amount that the grid company intends to claim may already been issued with a corresponding amount of GECs and sold to a GEC buyer. In this case, double-counting issues occur on the same amount of renewable electricity. In other words, either the grid company may be able to claim that it has already consumed the renewable electricity, or the GEC buyer could make a claim on the same renewable electricity issued with GECs, leading to double-claiming issues between the grid company and the GEC buyer.
As of June 2021, a specific measure of how to avoid the double-counting issue has not been issued, and thus leaving the uncertainties and risks for a company to meet the requirement of making exclusive claims on its GEC attributes to satisfy RE100 criteria.
The renewable electricity market is dynamic and varies globally. To achieve RE100 in China, pre-analysis on the Chinese renewable electricity market is crucial to evaluate if and how a company can secure 100% through different projects. Typically, a company may focus first and foremost on installing rooftop on-site solar PV at its facilities to achieve a relatively small proportion of its total electricity consumption. It may further add to its sourcing strategies by signing PPAs. As the market-based mechanism of renewable electricity further develops in China, for instance, the recent temporary policy announcement of Jing-Jin-Ji Green Electricity Trading Regulation (京津冀绿色电力市场化交易规则), private companies may find more opportunities to access the renewable electricity market. Lastly, a company may purchase GECs for the rest of its renewable electricity consumption to reach the 100% goal. Comparing with the first two options, purchasing GECs may have a weaker marketing effect from the perspective of corporate branding. As the energy transition continues to accelerate, more companies are expected to seize the leadership opportunities and unfold their RE100 journey in China.