Key Highlights:
- Starting from April 1, 2024, China's power grid companies will no longer be required to purchase all the on-grid electricity generated from renewable energy sources. This change will boost renewable energy's participation in market-driven power transactions.
- The volume of on-grid electricity generated by renewable energy projects is categorized into guaranteed purchase volume and market transaction volume. Power market participants are required to buy the guaranteed volume of electricity, but the exact percentage of this quota has not been specified.
- The government will set the prices for the guaranteed purchase volume of on-grid renewable electricity, while prices for the market-traded volume will be determined by market transactions. Previously, the on-grid renewable electricity prices were entirely regulated by the government.
- The Chinese authority has expanded the scope of renewable energy sources for power generation by adding the content of "power generation from non-hydro renewables" in the updated regulatory measures, preparing for a broader range of renewable energy sources to be included in the future.
Source: Compiled by GL Consulting based on government policies.
China's Installed Renewable Power Capacity Overtakes Thermal Power for First Time
China has seen substantial growth in its renewable power capacity in recent years. As of 2023, renewables, including wind, solar PV and hydropower, have outpaced thermal power, making up 50.4% of the nation's total power generation capacity, compared to thermal power's 47.6%. However, the existing power grids, designed under outdated standards, struggle to integrate the burgeoning volumes of green electricity. This leads to problems in aligning the supply of renewable energy with demand, both in time and location, placing stress on the power system. These issues have hindered the implementation of policies that are intended to ensure the guaranteed full purchase of renewable electricity.
Renewable Electricity Prices under Downward Pressure in Market Transactions
Starting from April 1, 2024, on-grid renewable electricity consists of two components: guaranteed purchase volume and market-traded volume. The guaranteed purchase volume is the amount that power market participants are required to buy, and market-traded volume refers to the portion of electricity sold in the market, with electricity sellers, consumers, and relevant members in the power market sharing the purchasing responsibilities.
Grid companies are only mandated to acquire the guaranteed purchase portion, which will significantly alleviate their consumption pressures. New energy companies will face the challenge of selling additional renewable electricity in the market. During periods of high utilization of renewable electricity, electricity prices will plummet, occasionally reaching zero or even becoming negative. Without the ability to forecast these fluctuations and devise effective trading strategies, the profit margins of new energy investors could be severely impacted.
Source: Compiled by GL Consulting based on government policies.
The original text of the policy can be accessed via the following link: https://www.ndrc.gov.cn/xxgk/zcfb/fzggwl/202403/P020240315321827362975.pdf
To get detailed full text, send an email to glconsulting@mysteel.com
Edited by Navy Liu: liuchuanjun@mysteel.com
