From retail, textile, clothing, technology and many other fields, the global supply chain will usually lead back to China. Therefore, leading international companies have long been looking for cost competitive renewable energy procurement solutions there.
After five years of power market reform, the national policy framework has laid a solid foundation for an open and competitive power market. During this period, three major policy trends emerged and showed strong potential to promote new market mechanisms and release the pent up demand of enterprise renewable energy buyers.
In the United States and around the world, major enterprises are increasingly aware of the key role they must play in addressing climate change. In order to achieve our ambitious climate and renewable energy goals, not only for their direct operations, but also for their supply chains, we are moving forward every day.
Trend 1: renewable energy portfolio standards provide new policy openness to provincial governments
In May 2019, the Chinese government formulated the renewable energy portfolio standard (RPS) and set annual renewable energy targets for Chinese provinces. According to the RPS, grid companies, power retailers, power buyers in the wholesale market and exclusive power plant owners are required to contribute to the overall goal of provincial renewable energy. Each province must now design implementation details, including the objectives, tracking and implementation of each covered entity.
RPS provides strong incentives for provincial decision makers, especially those who are far from the goal of RPS, to explore new market mechanisms, integrate more renewable energy into the power grid, and activate the demand of enterprise energy buyers. In turn, this provides a rare opportunity for energy business buyers to engage with provincial policymakers on renewable energy procurement.
We have seen buyers, renewable energy developers and non-governmental organizations work collectively with provincial decision makers in Shandong, Guangdong, Jiangsu, Zhejiang and Beijing Tianjin Hebei to form new procurement options. The ongoing market innovation in these groundbreaking provinces will enable more energy buyers to take action and engage with policymakers across China.
Second, it opens the door to the renewable power market based on the cost of renewable energy and the gradual elimination of subsidies for renewable energy (GES)
In 2009 and 2011, China began to provide subsidies for wind and solar power generation, and the installed capacity of renewable energy increased exponentially. However, this rapid growth also poses challenges, including cuts in renewable power generation and delays in subsidies that frustrate businesses.
In January 2019, China began to correct these policies. Now, new renewable energy projects after 2021 will be as cost competitive as thermal power generation. Green electricity certification (GECS), previously linked to renewable energy subsidies, will now reflect the willingness of energy business buyers to pay.
In this new context, enterprise energy buyers will be able to communicate with policy makers on cost competitive renewable energy procurement schemes bundled with GECS, the possibility of supporting new projects and improving the traceability of GECS.
Trend 3: the development of provincial spot market further increases the possibility of virtual power purchase agreement
Since 2017, several provinces in China have launched the spot electricity market, which aims to publish power generation costs in a more timely manner and provide information for resource planning.
In the long run, spot market prices will further show investors and policy makers the priorities of future investment, divestment and leisure decisions. So far, four of China’s eight provincial spot markets can use renewable energy. The development of the spot market has strong potential to promote more cost competitive renewable energy options and more flexible procurement options, including virtual power purchase agreements.
These three policy trends align the renewable energy demand of enterprises with the objectives and incentives of decision makers, renewable energy developers and other major market stakeholders. They have also created the necessary conditions for the liberalization of the electricity market, giving energy buyers better price discovery mechanisms and more choices.
This has laid the foundation for major provincial market and policy stakeholders to explore new renewable energy procurement schemes, which can truly reflect the ambitions and needs of energy enterprise buyers.
According to the analysis of micro lithium battery group, according to the recent market and policy development, the enterprise sector can cooperate with non-profit organizations to realize these opportunities. This is a unique and exciting moment: contact with provincial decision makers, clearly show the scale of enterprises’ growing demand for renewable energy, and pilot new renewable energy procurement schemes all over China.