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China to launch green certificates in July

The mechanism is expected to help reduce government subsidies and ease curtailment issues in the world’s largest renewables market.

China’s National Development and Reform Commission has announced a pilot scheme of green certificates for solar and wind power producers in the country in a bid to reduce government subsidies for renewables. 

Under the scheme, renewable power producers can sell ‘certificates’ to buyers such as coal-fired power producers, grid operators and industrial companies, with pricing to be determined by bilateral negotiations or competitive bidding but capped at the subsidy level. Serving as a proof of renewable power generation, each certificate represents 1MWh of electricity output. 

As they start to transact, the renewables companies will no longer receive government subsidies for the amount of electricity they produce that is linked to green certificates. Currently, solar and wind producers receive a benchmark tariff and a subsidy from the government. 

The scheme will commence on 1 July, on a voluntary basis. China’s state economic planning agency said it would become mandatory by 2018. 

China, the world’s largest renewable energy market, had installed 77.42GW of solar and 168.7GW of wind as of 2016. The national power regulator aims to grow the wind market to a size of 210GW by 2020, while solar power generation is expected to reach 110GW in four years’ time, according to the country’s 13th Five-Year Plan on Energy.

Rating agency Moody’s believes the scheme will lower tariffs for solar and wind in the near term as sellers may need to sell the certificates at a lower price to attract demand. But it also said the move should be positive for the long-term development of the renewable energy sector, in particular if it eases curtailment. 

“The new mechanism provides an alternative to improving the share of renewable energy in the country's total power generation mix without increasing installed capacity, thereby avoiding further pressure on existing overcapacity,” said Ivy Poon, an assistant vice-president at Moody’s. 

The agency does not expect an active trading volume during the first year because of the absence of clear incentives for both sellers and buyers. 

However, demand for green certificates will be supported over time by the requirement for coal-fired power producers to have exposure to clean energy in the medium term, Moody’s said. These are required to have at least 9 percent of non-hydro clean energy in their power generation mix by 2020, under guidelines issued by the National Energy Administration last April.