China’s green electricity certificates: An end to oversupply?
The Chinese market for green electricity certificates (GECs) is undergoing a structural transformation that may soon bring an end to the era of oversupply. An insight paper from Argus Media shows that the availability of unbundled certificates is decreasing as more renewable power generators opt for long-term agreements with large industrial consumers.
These power purchase agreements often bundle the electricity and the certificates together, leaving fewer individual credits available for purchase on the open market. This shift is not a temporary fluctuation but a fundamental change in how renewable energy is traded within the country, the insight paper argues.
Global regulatory shifts are also playing a significant role in tightening the domestic supply of these energy credits. For example, the introduction of the European Union carbon border adjustment mechanism this year has created a strong incentive for companies to secure bundled power and certificates.
By matching renewable power consumption on an hourly basis, importers can effectively reduce their financial liabilities. Because many of these procurement deals span between two and five years, the reduction in available certificates in the unbundled market appears to be a long-term trend.
How do GECs work?
GECs serve as official digital records in China where each certificate represents a single megawatt-hour of electricity generated from renewable sources like wind or solar. The primary purpose of these certificates is to provide a standardized way for businesses to track and verify that the power they consume actually comes from clean energy, even after it has mixed with coal-based power in the grid.
By purchasing and retiring GECs, companies can formally claim they have reduced their carbon footprint and meet international sustainability standards. Retiring a certificate is the final step when it is removed from circulation so that the environmental benefits can be claimed. At that point, it is moved to a locked account or canceled in a registry.
Channeled or non-channeled?
The market is further divided by the distinction between channeled and non-channeled certificates, the Argus Media insight paper explains. This may seem like a minor distinction, but the
Channeled certificates are linked to renewable power transmitted between different provinces under government procurement programs. Many companies avoid using these types of credits for official compliance reporting to prevent the risk of double-counting, as provincial governments often include this power in their own renewable energy targets.
For that reason, organizations with strict compliance obligations typically seek out non-channeled certificates from other provinces, a practice that mirrors how carbon allowances are traded in various international cap-and-trade systems.
Voluntary markets and price benchmarks
While compliance entities may be restricted in their choices, the voluntary market remains a viable outlet for channeled certificates. These credits are frequently used for corporate reporting and typically trade at a discounted price compared to their non-channeled counterparts.
There are certain variables in the market that purchasers need to be aware of. For example, there are differences between assets that receive government subsidies and those that do not. There are a variety of different benchmarks for determining a fair market value based on active trades and bids. These benchmarks are used for risk management and trade negotiations in a market that is becoming more sophisticated through the use of AI and advanced data tracking.
