Offsite, But on Radar: The Opportunity for Offsite Renewables in China

China is a world leader in renewable energy with ambitious goals for low-carbon energy generation, earning it a three-year run at the top of EY’s renewable energy country attractiveness index. The avenues for commercial and industrial (C&I) organizations to procure renewable energy in China have been limited but are developing. In our previous post with Seeder Energy, we discussed the exciting and immediate opportunity for onsite solar in China. Today, we will cover the emerging opportunities for companies to procure offsite renewables in China.

There are four primary approaches companies should consider:

  1. Renewable Energy Certificates

Renewable energy certificates (RECs) are currently the easiest and most accessible way for companies to purchase renewable energy in China. Companies have the choice of either buying into the Chinese government REC market or purchasing from a collection of international REC programs, such as I-RECs, to address their Chinese electricity load.

China opened a national green energy certificate market in July of 2017, and as of June 2018, 244,000 wind RECs and 67,160 solar RECs were sold. The goal of the program is to use RECs to encourage an additional revenue stream for clean energy developers, so they can reduce their reliance on government subsidies. Though the mechanism is available, there is no consensus that purchasing government RECs is the best approach. Many companies defer to other methods because RECs from the national program are derived from existing renewable energy projects and are priced higher than international options that are now available.

International RECs are available at a much lower cost, and they typically follow the generally accepted U.S. or European reporting standards. The greatest challenge companies face in making this decision is that RECs through international programs are not explicitly endorsed by the Chinese national system. Despite the lack of an official government endorsement, the international community generally accepts and remains confident in this practice for addressing load in China. For example, in 2017, Microsoft, Lenovo, Philips, Goldman Sachs and Steelcase all reported I-REC purchases to CDP to address Chinese operational emissions while others such as Interface, Novo-Nordisk, and TetraPak have purchased GoldPower in the past.

  1. Intra-provincial Direct Power Purchase Agreements

Direct (also known as retail-sleeved) renewable PPAs are the mechanism that much of the renewable energy community is working to achieve to advance corporate renewables in China, help reduce curtailment and possibly provide better project economics to developers and cheaper electricity for offtakers. The third being especially important, as feed-in tariffs and subsidies have been decreasing or delayed entirely.

Direct deals involve signing an offsite PPA with a renewable energy developer or independent power producer (IPP) and power retail company, via the provincial power exchanges, with physical power transmitted through the grid (paying a wheeling fee) to the offtaker’s facilities. Companies signing direct PPAs can receive the environmental attributes associated with their renewable generation to use toward carbon-reduction and renewable energy goals. These bilateral contracts can be a straight-forward, low-risk way to claim renewable power, but opportunity identification and contract negotiation require time, market knowledge, policy support and good local relationships.

In China, direct renewable transactions are still in the piloting stage. State Grid-run power exchanges in provinces where there is renewable energy overcapacity have begun to allow renewable energy to be traded directly. In those provinces, large industrial users can set up a direct PPA between a renewable energy generator and the power exchange. These deals typically lock in a 1-year term to power their facility with renewable energy (typically hydro or wind). To be able to enter the power exchanges, industrial energy consumers must meet minimum load requirements which differ by province with the average being around 10 GWh per year. Offtakers may be subject to penalties if they do not reach the threshold for their minimum purchase requirements each year.

Recently, inter-provincial renewable energy trading has become possible for power companies (private enterprises not yet participating) in eastern provinces to buy renewable energy from producers in western provinces where renewable energy is over-supplied (see Figure 1). In 2017, the Beijing Power Exchange traded 37 billion MWh of inter-provincial renewable energy (wind, solar and hydro), accounting for 47 percent of energy traded between provinces in that year. Those in the Shandong province, on the government’s cross provincial high voltage transmission line buyer’s list, were able to buy wind power from the Shanxi province at the beginning of this year. These transactions typically become possible during the first quarter of every year.

Renewable Energy Direct PPA Availability by Province

Figure 1: Renewable Energy Direct PPA Availability by Province (Darker color indicates greater possibility of renewable energy via PPA due to likelihood of over-supply of renewables in that province)

By the beginning of 2019, we expect that direct PPA transactions will be available at a much wider scale. In addition to power companies, private enterprises may be able to purchase renewable energy directly from renewable energy producers both inter-provincially and intra-provincially soon. For example, on July 18th, the National Development and Reform Commission (NDRC) announced its plan to encourage direct renewable energy PPA transactions for medium size end-users which connect to the grid at 10kV or above (previously this has only been open to 35kV and over).

It is expected that several government pilot projects will be announced in the second half of 2018, and direct PPA transactions will be available in more provinces. In the meantime, interested C&I offtakers are encouraged to begin feasibility assessments, engage with grid operators and developers in China and get to know the market dynamics so they can be ready to transact once the opportunity becomes viable in their region.

  1. Selling to or buying power from your neighbors

Organizations that generate more electricity than is needed for their operations will export excess power to the grid and receive the low wholesale power price. The concept of selling this excess to a neighbor would allow the generator to charge a higher rate than the grid exporting rate, but the purchasing entity would still pay a lower rate than the retail price at which they would normally buy electricity from the grid. The downside for a generator is that they would have to relinquish their subsidy to trade electricity locally. To make economic sense, rate negotiations need to compensate the generator for this loss of the subsidy or for new projects if they are unable to get the subsidy.

This option is likely to become a more common practice in the next two years. The NDRC has approved several trading pilot projects that allow the selling of electricity to neighbors under strict policies. Neighbors are required to be in the same transmission line as the generating entity, and the maximum voltage range must be less than 35 kV. Though this option is quite new, it is certainly something for companies to keep in mind for the near future.

  1. CAPEX investment

Progressive companies have been experimenting with investing directly in both distributed generation and utility-scale renewable energy projects in China. A CAPEX or direct investment deal involves partnering with a developer to become a minority shareholder of a renewable energy project in exchange for the legal claim of the environmental attributes of the project. These investments generally see attractive returns of 8%-10% for distributed generation and 6%-8% or lower for utility-scale generation. When proper due diligence is done, and projects are vetted correctly, these investments carry fairly low risk. With a CAPEX investment, companies can right-size a deal to match their load, and this structure provides many companies a unique opportunity to utilize cash reserves in China while meeting carbon-reduction goals.

Apple has publicly announced its CAPEX investments into four wind projects and 200 MW of solar projects in China, partnering with suppliers to install more than 2 GW of new clean energy.  This includes the recent announcement of a $300 million dollar fund to invest alongside their supplier to help them meet their renewable energy commitments.

These projects not only help the company reach their ambitious global renewable energy goals, but also to further green their supply chain.

Interested in learning more? Download our summary chart for offsite renewable opportunities in China, with additional indicative pricing included.

The article is also posted on Schneider Perspective Blog.


Onsite Solar in China: 5 Questions Your Company Should Ask

The horizon for corporate adoption of renewable energy becomes more expansive with every passing year. Emerging markets for renewable energy, such as China, are opening with attractive options and a promising outlook for corporates looking to address their global energy usage with clean power. The driving force behind the growth of renewable energy opportunities in China is the rapidly dropping costs of renewable power and the pace of corporate commitments.

Solar power presents an increasingly attractive prospect for commercial and industrial (C&I) energy buyers with operations in China. Between 2011 and 2015, the global average price of solar PV modules dropped between 75-80 percent, with steady declines predicted to continue. As could be predicted, between 2011 and 2017, installed solar PV in China skyrocketed from just 2.3 GW to 130 GW. China also announced an updated 5-year plan for climate and energy, which includes an ambitious goal of increasing non-fossil fuels to 15% of total energy consumption in the country by 2020. These factors, combined with the growing number of multinational corporations publicly committing to clean power (over 130 companies have joined the RE100, 374 companies are taking action via the Science-based Targets initiative(SBTs), and others) make China an exciting platform for corporate renewable growth.

Opportunities for Onsite Solar in China

Onsite solar is the primary opportunity for corporates to focus on in China. A steep drop in costs has resulted in greatly improved returns, making PPAs for onsite generation an attractive option for C&Is. In addition, the Chinese government offers a subsidy for onsite solar generation of ¥.37/kWh (about $.06/kWh). In 2018, this subsidy decreased for the first time, and is expected to continue to decrease in the coming years. As a result, companies considering taking advantage of the current opportunity for solar in China are recommended to act quickly. Once a project is complete, and accepted into the government registry, the subsidy rate is locked in for 20 years. To capture the greatest value, companies should aim to get projects completed before the rate drops again (likely to happen in 2019).

Installing solar onsite via a PPA requires zero upfront capital expenditure and—due to the low price of solar in China—onsite installations offer significant opportunity for energy cost savings and progress on environmental performance. Public pressure on corporates to address global carbon footprints is more intense than ever before and supply chain scrutiny is becoming just as important. The impact of this pressure is more than just reputational; In 2017, China shut down tens of thousands of factories due to environmental penalties. For multinational corporations with operations in China and/or supply chains that operate there, cleaning up energy supply is no longer an option; it is a must.

Though the opportunity is immediate, it is worth answering a few questions first to see if an onsite PPA is appropriate for your organization.

  1. Are your facilities owned, or leased? If your facilities are leased, a 3rd party PPA is more difficult. Though this does not necessarily kill a deal, working with landlord approvals can create more barriers to adoption, and it can be a complicated task to get landlords to buy-in to putting solar panels on the roof. In the case that facilities are leased, a self-investment strategy will reap the highest value as project returns can be as high as 15-20 percent.
  2. What is the age of the facility and the quality of the roof structure? Many facilities in China have outdated roof structure or minimal load bearing capacity (solar typically requires at least 15kg/sq meter) which could jeopardize the quality of an onsite solar installation. Knowing the age of the roof is very important, as is whether it’s a steel or concrete roof as the latter has a much higher load bearing capacity.
  3. How big is your rooftop? Rooftops smaller than 2000 rooftopo solar in Chinasquare meters are more difficult to get PPA providers interested in because smaller projects require a similar time investment, but result in lower returns. A self-investment strategy is a viable alternative to a PPA in this scenario.
  4. What is your annual electricity load/capacity to utilize renewable energy? In addition to the size of the rooftop, knowing how much electricity your facilities consume can help with right-sizing a solar installation. For example, a warehouse facility may have ample roof space for solar panels, but low electricity consumption. This can be challenging because the electricity generated by the panels may be sold to the grid instead of consumed, resulting in lower payback.
  5. How much do you pay for electricity? Electricity price determines the financial return of the project and impacts the viability of whether a developer is willing to offer a PPA. Knowing your current electricity rates will help you understand the potential returns of an onsite solar investment.

In addition to answering these questions, several tools exist that allow C&I buyers the get a gauge for whether onsite solar is a good fit, and develop a business case for exploring this strategy. Seeder Energy, an advisor for solar in China and partner of Schneider Electric, has developed a solar calculator which companies use to get a rough estimate of possible opportunities by simply entering the size of a facility’s rooftop. Upon entering the roof dimensions, the calculator approximates the size of the solar system, how much electricity it would produce annually, the amount of savings expected depending on the chosen financing structure, as well as the installation’s annual carbon-reduction potential.

In addition to using the solar calculator, corporates exploring this opportunity often find value in doing a feasibility study to gather all the necessary information to make a decision. A project feasibility study and site analysis provides the options, costs, risks and benefits of onsite solar deployment. There are many nuances to these projects that can become a barrier if not addressed early in the process. To make the best decision, companies use feasibility studies to provide sound financial data and comparisons of a variety of options.

A professionally-executed feasibility study dives into variables that range from the solar systemsolar in china feasibility potential to the rooftop loading capabilities to the financials and weather data. This gives companies a better idea of what options are available before acting. Engaging a trusted, experienced advisor helps to overcome any challenges uncovered during the feasibility study and negotiate with local counterparties.  Understanding the market norms, policies and pricing ensures that risks are covered and that the best deal is achieved.

Through a feasibility study performed by Seeder Energy, an American Fortune 500 company with four factories in China identified their two best site locations for onsite solar, where best to use a PPA, and determined that the two sites were not suitable for a PPA and instead opted for self-investment. In the feasibility study they received detailed financials based on several scenarios and flagged potential local permitting issues on one site which helped them make an informed decision. The study also provided the company with expected pricing and terms. Access to this information significantly accelerated the vendor selection and negotiation processes since they already knew the optimal price and terms for their given projects.

This post is also available on Schneider post. Read more here! 


First 30 Days: China’s REC Market Saw Weak Demand

China’s governmental voluntary REC market or ‘green certificates’ was officially launched on July 1st, 2017. About 230,000 RECs from 20 utility-scale wind and solar projects (only one solar) have been listed on the official trading platform ( amounting to 230 million kWh of renewable energy, tiny when compared to the 20 billion kWh of renewable power that was curtailed in 2016, but still a good start.Compared with the supply, market demand for RECs has been very weak. Up to July 31th, 6,681 RECs were sold, among which 6,726 are from wind and 116 from solar, about 0.5% and 1.5% of their total supply respectively. The buyers were mainly SOEs, who might be acting out of goodwill to support the government initiative or to create demand for their own projects. It is obvious that wind RECs outnumbered solar RECs both in supply and sales. “Zero Sale” of solar REC was all over news headlines on the first day of the launch. The first solar RECs were not traded until the third day.

We believe there is low demand mostly because these RECs are only from existing projects and don’t create additionally. Moreover these RECs tend to be coming from projects in western china that are very far from the load centers of the east coast, and lastly the uncertainty of the evolution of the Green certificate market towards a mandatory market is encouraging some to wait and see how things play out. As Seeder said in our February post, companies prefer to support the construction of new renewable projects to maximize their environmental impact — in other words, to create “additionality”. They also like to receive economic returns and financial savings in such investments and projects, while RECs can only be a cost.

Multi-national companies, such as Apple and Google and other members of the RE100 (corporations that have committed to go 100% renewable), have become increasingly aggressive in renewable energy procurement in recent years. In comparison, their Chinese counterparts, even if of the same size, may be reluctant to commit to renewable energy without a clear financial benefit. But it is not unexpected. Voluntary-based REC markets are an intermediate trading platform. It’s not likely to scale up to a level large enough to replace subsidies. In the U.S., after 10 years of practice, still only 1/3 of renewable energy deals are realized with non-mandatory REC sales.

China’s Wind REC is much more popular than the solar REC because it is much cheaper. A wind REC costs about 200 RMB in avarage while a solar REC around 500 RMB. This is because REC costs are capped at the project’s eligible subsidy, which in general is lower for wind projects and higher for solar. A smaller reason might be the total wind capacity is the double size of that of solar.

Sometime in 2018, the government will make REC purchase mandatory.  By then, additional policies and market rules will be needed to define the actors under such a mandate, and ensure that the price of RECs can help achieve the policy’s ultimate goal, which is to support renewable energy development and integration.  We expect the government’s green certificates to continue to only be offered on utility-scale renewable energy projects (projects above 20MW) and see an opportunity for other private REC programs to develop in the China market, specifically to serve distributed solar projects and to create more accountability and tracking mechanisms for renewable energy generation.In conclusion, the launch of REC does not aim at creating strong social impact, but rather at raising awareness to the environment and clean energy among Chinese companies and citizens. REC alone is unlikely to achieve the clean energy transformation we need. On-site projects, whether financed through a PPA or corporate investment, and perhaps paired with RECs for accountability, are still the most concrete way to build new renewable energy resources. Meanwhile, companies can purchase certificates to fulfill the rest of their commitments to renewable energy.

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Fortune 500: Climate Goals Leads To Improved Bottom Lines

Private companies have continued to make significant contributions to achieving the 2015 Paris Climate Agreement goal of limiting global temperature increase to below 2 degrees, despite the setback made by President Trump — pulling the U.S. out of the Agreement. The commitment from Fortune 500s to emit fewer greenhouse gases (GHG) has never been so strong, with 23 companies committing to be 100% powered by renewables and 48% of Fortune 500 companies with at least one climate or clean energy target, representing a 5% increase from 2014, a recent report by the WWF, CERES, Calvert Research and CDP reveals.Fortune 500 companies broadly embrace renewables and energy efficiency 

Looking at the biggest companies reveals an even stronger commitment, with 63% of Fortune 100 companies leading the trend to address climate change. Leading companies include Apple, Bank of America, Facebook, Google, and Walmart.


Despite the relatively smaller absolute percentage in the bottom quintiles, Fortune 401 – 500 companies, the smallest in the cohort, have shown significant improvement. Compared with 2014, the percentage of companies with targets rising from 25% in 2014 to the current 44%, a total increase of 19%. This improvement in the smaller Fortune 500 companies reflects the shift in corporate attitudes towards renewables. Like Marty Spitzer, Senior Director of Climate and Renewable Energy at WWF said: “American businesses are leading the transition to a clean economy because it’s smart business and it’s what their customers want.” Setting renewables target expands from larger companies to companies of relatively smaller scale might represent a positive trend and it is likely that companies outside of the Fortune 500 will continue the increase in renewable targets.

Buying clean energy is becoming a trendThe rapid increase in corporate renewable energy PPAs and other direct contracts points to the overall trend that large companies are increasingly looking to more direct forms of procurement over unbundled RECs to maximize both the business and environmental benefits of these purchases.


53 companies have set goals to buy or invest in renewable energy, such as solar or wind. The approaches include unbundled Renewable Energy Certificates (RECs) purchases, onsite installations (mostly solar), and larger-scale, off-site purchases, the latter of which has seen significant growth in recent years. According to the Solar Energy Industries Association, corporates have now installed more than one gigawatt of onsite solar capacity in the U.S. Since 2014, nearly 7GW in new, direct, off-site corporate renewable energy contracts have been signed by 33 companies (most, but not all are in the Fortune 500)


The trend is set because direct procurement (onsite installations and offsite procurement where the company is involved in some way in the energy sales transaction in addition to taking title to the RECs) allows companies to both access fixed-priced renewable energy, which can save on energy costs over time, and to cause new generation to be built over what would have been driven by regulation, enhancing the emissions reduction impact of the company’s investment. The plummeting price of wind and solar allows companies to achieve more than just GHG emission reduction targets. The purchase also brings reduced operating costs, long-term price stability, and a diversified energy supply.


Save the planet while capturing business value


Achieving clean energy targets means saving money and growing profits. In 2016 alone to totals $3.7 billion, up from $1.7 billion in 2013, were saved by nearly 80,000 emissions-reducing projects implemented in 190 countries. In the meanwhile, companies also decreased their annual emissions by 155.7 million metric tons of CO2 equivalent, which is equal to taking 45 coal-fired power plants offline for a year. This number was only 26.7 million in 2013. During three years of time, companies increased their savings by $2 billion and 129 million metric tons of CO2 equivalent. The improved impact to the environment is all the more significant.


The environmental impact is more certain as more companies adopt science-based methodologies to inform and monitor their renewable targets. A significant number of these companies are increasing their ambition by aligning their carbon reduction goals with climate science, such as Walmart’s Gigaton commitment.

The company aims to reduce its carbon dioxide emissions from upstream and downstream sources by one billion tons (a gigaton) between 2015 and 2030.

A science-based target utilizes the best available scientific data to define a company’s appropriate share of emission reductions required to limit global temperature increases to below two degrees Celsius. Various methodologies to inform their science-based targets have been developed and are constantly evolving. For instance, the decarbonization pathways by the Intergovernmental Panel on Climate Change (IPCC) have been adopted by several companies. Implementing science-based methodology implies more commitment and ambition.

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168 Hours on 100% Renewables

168 Hours on 100% Renewables: Qinghai’s Trail Means More Potential for Governments and Companies to Go Green.

For seven days — from June 17th to 23rd — China’s Qinghai province ran on 100% renewable energy, including solar, wind, and hydropower. During that time, the province generated 1.1 billion kilowatt hours of energy for over 5.6 million residents. That’s equal to burning 535,000 tons of coal.

The week was part of a trial conducted by the State Grid Corporation of China, which aims to test the viability of relying on renewables long-term. This successful experiment in part proves China’s dedication to fulfill its commitment to the Paris Agreement, peaking its coal consumption and reducing its carbon intensity by 60%-65% by 2030, as well as its hope to produce 20% of its electricity from renewable sources by 2030. It also demonstrates that running largely on renewable power — at least in certain places — is technically feasible. We hope this will embolden governments and companies to envision a future with more renewables in their energy mix.

Big Hydro and Weak Demand Critical

The geographic location of Qinghai is rich in solar and hydro resources. Out of Qinghai’s 23.4 GW of total power generation capacity, around 82% is from renewable sources (including hydro). Solar alone accounts of 29.1% of all capacity installed, registering as the second largest power source of the province. By 2020, the province plans to expand its clean energy capacity to 35 GW, which could supply 110 TWh of clean energy annually. Ample summer rainfall is a significant contributor, as hydropower accounted for approximately 72% of the electricity generated during the seven days.

Apart from strong hydro output, Qinghai’s low power demand is also an important reason for this trail to success, something difficult for other places to replicate. The average daily power demand is 150 million kWh, only 15% of that of the much more developed Zhejiang province (1 billion kWh daily demand) for example.

Running on solar, wind and hydro, Qinghai has shown the technical viability of going 100% renewable and it proved that the grid is stable when supported by a variety of renewable sources. This test helped China’s grid operators to accumulate technical experience in deciding how much power should be supplied by which sources.

More renewable energy also makes economic sense for Qinghai. “On-grid price of hydro power is 0.201 yuan/kWh, while coal power is 0.325 yuan/kWh. Coal is 0.124 yuan more expensive than hydro per kWh. It´s also cheaper for grid companies obviously. In another word, it is economically viable.” Xiaoping Xie, president of Huanghe Hydropower Development Company said in an interview.

Calling Higher Ambitions

Yunnan, Sichuan and other provinces rich in renewable resources, that have installed many renewables are also in the condition of accomplishing something similar, although they have not announced such intentions as of yet. Such government-led pilot schemes have shown that the Chinese government is willing to fulfill its commitment to clean energy.

In addition to the government’s role, companies around the world have stepped up  their effort by setting renewable targets. 23 Leading Fortune 500 companies have gone a step further by integrating a 100% renewable energy commitment into their business strategy. For example, Google has promised that by 2018, every click on Google will be powered by renewable energy.

Qinghai’s 100% renewable energy trail provides an important signal to governments and companies alike, that high percentage of renewable energy power mix is no longer just a vision but a reality, and that adoption will only grow higher going forward. For companies that care about their energy footprint, this trial — and the broader direction it signals — not only mean that their own effort to procure clean energy will create synergies with government initiatives, but also that electricity generated from their renewable projects will be better absorbed by their grids and communities, allowing them to reduce curtailment risks and contribute more to local communities.