Update of the current status of FCEV Model City-cluster Project after 2022

【In brief】

- Two Chinese hydrogen projects, one renewable hydrogen production project, and one hydrogen fuel cell logistic truck project are seeking CDM crediting to issue international carbon credits. Another hydrogen fuel cell commercial vehicle project is up for CCER issuance at home.

- Hydrogen credit issuers expand from upstream to downstream, going from green hydrogen producers, hydrogen fuel cell vehicle operators, to vehicle end-users based on different emission baseline scenarios.

- Hydrogen credit can be sold either as a stand-alone product (unbundled credit) or bundled with hydrogen (bundled credit). If it is sold as a stand-alone product, the issuer should pay extra attention to the double-counting between the credit retiree and the physical hydrogen product buyer.

[Snapshot]
1. To achieve carbon neutrality, CCUS decarbonization technology will be necessary for hard-to-abate sectors such as cement, steel etc. For instance, in the cement sector, the replacement of green electricity and green fuels could only cut 40% of emissions. The rest 60% cut might only be reduced through CCUS, carbon conversion technology etc.
2. Considering the high cost needed during the capture process, except for driving down high capture costs, usage of captured CO2 can be of vital importance to increase the overall revenue.
3. In the short term, EOR will continue to be one of the most economical feasible carbon utilization methods. Under a high oil price situation, such as now, oil revenue from CCUS-EOR (~USD 270/ton) is able to offset CCUS operation cost which is estimated to be around USD 130/ton.
4. Although currently dominated by big SOEs, private and foreign companies play key roles in China’s CCUS project development. Dunhua and Shell are two examples.
5. EOR can be a transitional method in the short term, but the development of other storage resources shall also be put on the agenda, otherwise, it raises the risk of slowing down CCUS deployment due to a lack of data and experience on storage resources.

In brief:
1. Although financial investors both home and abroad are temporarily excluded from the national ETS, it is likely that they will be introduced in the near term.
2. Once financial investors are involved and derivative products are adopted, the national carbon market could grow further and the price of CEA could rise from the current ¥49/t to around ¥93/t by 2030, according to China Carbon Forum’s estimation. A similar trend could be expected on CCER.
3. For those participants who are eyeing the relaunch of CCER and seeking business opportunities in China, the international voluntary carbon market provides a valuable reference in terms of credit issuance project types, carbon offset business model, scope 3 emission reduction strategy, etc.
4. Looking forward, China’s carbon market is likely to embrace new projects that support cutting-edge technologies such as Carbon Capture, Utilization and Storage (CCUS), hydrogen storage, and commercial fuel cell vehicles to align with the country’s carbon neutral goal. Innovative business model that reaches beyond the corporate level and further down to end-consumers could be an emerging trend to watch.

[Snapshot]
1. Renewable energy mismatch in China has raised concerns over the coastal region’s carbon neutrality progress, offshore wind could be one solution.
2. Although the dramatic surge of offshore wind in 2021 was mostly due to the cancellation of national subsidies, there are several reasons why offshore wind power growth could stay strong despite the removal of subsidies. Policy signals and great potential wind resources on the sea are major reasons.
3. Challenges also exist. Costs remain the main barrier. High construction costs in vessel renting and installation of submarine cables and high operation and maintenance costs are likely to continue in the short term.
4. In the middle of every challenge lies great opportunities. New technologies such as floating offshore wind and synergies like the offshore wind with oil or hydrogen production are at the forefront.

Snapshot:
1. To further boost renewable energy development and reduce carbon emissions, China’s green electricity pilot trade program was launched in Sep. 2021 by the National Development and Reform Commission, the country’s top economic regulator.
2.Previously under the conventional mid-to-long term trading scheme, many corporate consumers faced barriers in purchasing green electricity due to 1) the lack of a specific program for green electricity procurement, and 2) a potential to lead to double-counting.
3.With the launch of the pilot trade, a specific program was introduced between RE generators and corporate consumers to increase the accessibility of green electricity procurement. In addition, “bundled electricity + attribute certificate” was also introduced to avoid the potential risk of double-counting that occurred in the conventional mid-to-long term trading scheme.
4.However, there are a number of challenges that still need to be overcome, especially from the corporate consumer’s perspective. These challenges include the potential of double-claiming issue, and the regulatory barriers of procuring green electricity cross-provincially in the wholesale market.

The FCEV logistics operation business in China emerged in 2017, with the establishment of STNE and its astonishing news of immediately deploying 500 Dongfeng FC light-duty trucks in Shanghai. This article will explore the current situation and business model of the 3 major FCEV operators in China.

Snapshot:
1. To realize carbon neutrality and maintain a sustainable green economy, China will use more renewable-energy power and further marketize the power industry. Under this background, the government has eyed managing demand-side resources, instead of heavily exploiting fossil-based resources in previous times. As an effective measure of demand-side management (DSM), the demand response (DR) has been more frequently implemented throughout the country, especially in tier-one cities.
2. Different from other administrative measures of demand-side management, demand response is more flexible in load resources and capital resources. It not only covers a diversity of load types, such as V2G-capable EVs and charging piles, VPP and storage system, but also leverages power markets to help participants gain revenue for joining demand repones events. (See example of Hebei Grid below)
3. As a party who gathers and organizes load resources, load aggregators (LAs) are created to better serve DR and opens up busines opportunities for various load resources and suppliers.

Snapshot:
1. Electricity prices for coal-fired power are allowed to rise to 20% against the benchmark price, compared to a previous cap of 10%. In reality, the price has surged to the highest ceiling price in many provinces.
2. Electricity cost for high energy consumption entities is not subject to the 20% cap. In Liaoning and Guangxi, province, the cost has increased nearly 50%.
3. Coal-fired power generators’ operation difficulty would be temporarily alleviated but facing stronger market competition in the future.
4. Bunch of new industries are emerging due to market reform, especially on the demand side. Big data plays an essential role in it.

Energy storage is highly complementary for the large-scale deployment of renewable sectors and is commonly regarded as the missing link between intermittent renewable power and 24/7 reliability. It can mitigate the issues of fluctuated production of renewable energy, meanwhile providing power source between blackouts as well as offering power quality management for stakeholders of the power system. Given its indispensable role, the government of China has highlighted its importance and brought in national planning, while gradually exploring the business model and economic feasibility of energy storage system.