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China Paves Way to Allow Clean Energy Purchase from Nearby Distributed Sources

Corporations keen to source clean energy understand the advantages of distributed generation. Apple, a leader in corporate renewable energy purchase, wrote in its Environmental Responsibility Report that “Apple’s renewable energy approach goes a step further to make sure we ‘deposit’ on the same grid as the energy we are ‘withdrawing.’” This preference is because distributed generation (DG) faces less power loss during transmission, no curtailment risks, and corporates can contribute to local economies and communities.

But China’s not-so-liberal power market has so far prevented a consumer from buying electricity from nearby distributed generators. Electricity from a rooftop solar project, for example, can either be used by the building directly beneath, or be sold back to the grid – and dispatched just like electrons from any other source.

This past month, China’s National Energy Administration (NEA) finally made a big step to break that restriction, by introducing a draft policy on “distributed power trading pilots.” In the draft, distributed energy projects can sell power to nearby consumers, and the grid company will charge a “transmission fee” when delivering power. Some preliminary details below:

  • For the first batch of pilots, power retail would only be allowed in very small areas. Power sellers and buyers should be in the same 35kV power supply network – which is normally a district in cities like Shanghai – or the same 110kV network when it is the lowest voltage network, such as in industrial parks.

  • Distributed power generators can sell power in three ways: 1) They can trade directly with an end consumer within an 110kV network; 2) They can also delegate the grid company to sell power; 3) Or they can choose not to participate in the retail market and have the grid company purchase all of its electricity. For a buyer, this means it can purchase power from a DG source directly or from the grid for DG electricity.

  • The government will acknowledge clean energy purchased through this mechanism when measuring a company’s clean energy and energy saving efforts. For carbon credits, the buyer and seller can settle attribution among themselves directly.

  • The policy is subject to distributed power projects with installed capacity below 20MW. City- and province-level grid companies will set up trading platforms.

Testing the water cautiously, the government will announce the first batch of pilots by May 31st, and trading is to start on July 1st. At the end of 2017, it will decide whether and how to expand the pilot area.

We expect power retail pilots to be set up in limited areas at first – an easy starting point would be in industrial parks where power networks are more independent. Even with the small scale, this is an encouraging sign that Beijing is opening up power retail specifically for the distributed market. Furthermore, NEA specifically mentioned that the retail policy will not affect the current subsidy scheme for distributed renewables.

For corporations, this policy means that in the near future, more clean energy sourcing options will be available. Corporates will be able to support distributed projects that will create environmental and economic value locally.

RECs Aren’t “New”: Should Corporates Buy China’s New Green Power Certificates

As corporate social responsibility drives multinationals to support renewable energy development, many found themselves confined to on-site renewable projects that are too small to create significant fuel switching or financial return. Until now.

This month, China’s central government announced a new green power certificate program, similar to the U.S. renewable energy certificates (RECs), set to start in July. This mechanism allows corporates to purchase renewable energy “attributes” from off-site projects, introducing a faster and scalable procurement option that is not limited to companies’ building sizes. Companies in pursuit of more significant environmental impact and financial benefits, however, have in recent years moved beyond RECs in developed markets, and rely on Power Purchase Agreements (PPAs) to finance concrete new projects. We recommend corporates taking a combined approach to meet their renewable energy commitments.

The Mechanism

 Electricity on our power grids come from all sorts of sources: coal, nuclear, natural gas, and renewables. Once the electrons are on the grid, they are all blended together. So, an end user cannot tell where that exact electron comes from. The Green Power Certificates are a mechanism to separate the electrons and their renewable attributes, and make the latter tradable. By purchasing the certificates and “combining” them with the non-attributed electrons, companies can claim that they are using renewable energy or are supporting renewable development.

In China’s upcoming mechanism:

  • The certificates will be verified and issued by China’s Renewable Energy Information Management Center, a government body that can ensure the authenticity and accountability of each certificate.
  • The energy sources that can generate green power certificates include: inland wind and utility-scale solar projects. Distributed solar and other forms of renewable energy are so far excluded from this mechanism.
  • Earmarking 1MWh of wind or solar energy, each certificate is unique. It can only be purchased once and cannot be resold.
  • The subscription price of a certificate is determined upon buyer-seller negotiation or via bidding. The price cannot be any higher than the subsidies the government would normally pay for that clean energy source. Wind or solar generators that sell the certificates will no longer receive subsidies for the corresponding electricity.
  • Trading of the certificates will be voluntary starting from 1 July and will become mandatory “at an appropriate time” in 2018.

 

The Motivation

The Chinese government is introducing the trial primarily to help reduce its subsidy burden. The current renewable energy subsidies are financed through an additional charge included in electricity fees. The funding pool, however, is facing an estimated RMB 60 billion ($9 billion) gap at the end of 2016. The green power certificate is a mechanism to allow other sources of capital to fill that gap. Once the government makes it mandatory for power generators or utilities to provide a portion of their electricity from renewable sources, green power certificates are expected to replace government subsides as the only source for renewable generators to receive additional revenue.

On the surface, green power certificates are priced at or below the level of the subsidy that a generator can receive. But as some of China’s renewable energy generators are currently facing a subsidy payment delay stretching over two or three years, they might be willing to sell certificates for faster cash flow, provided that the prices are not too low.

 The Drawbacks

 Since the early 2000s, corporates have been using RECs in the U.S. and several European countries to show their commitment to renewable energy and carbon reduction. However, these early markets have moved beyond RECs in recent years, some even calls RECs as “the lowest bar,” for two major reasons:

  • Many corporations seek to demonstrate a more significant environmental impact – often by bringing new projects online, a process also known as “additionality.” With this view, purchasing unbundled RECs (i.e., the environmental attributes but not the energy) generally will not have any additionality value. Companies like Walmart even go so far to explicitly mention that “under normal circumstances, we prefer not to simply offset our non-renewable power by purchasing standalone renewable energy credits (RECs) or other certificates.” These markets and companies have since favored purchases of renewable energy through PPAs or virtual PPAs.
  • Corporations interested in purchasing renewable energy want to see a financial benefit. Purchasing unbundled RECs is a cost – albeit a modest one – without direct financial return. However, solar and wind costs are at historically low levels, allowing for very competitive PPA pricing and offering an intriguing economic opportunity. PPAs promise to reduce costs, as well as to provide a long-term hedge against rising and volatile energy prices, future REC prices, and any eventual price on carbon. 

The Impact on Corporate Procurement Strategy

The certificates are a flexible tool to help achieve clean energy goals and support the renewable energy market. With lower cost, wider selection of suppliers, and simplified transactions, the certificates are an important mechanism for corporates in China to meet renewable energy goals.

However, because the certificates do not include the underlying electricity, the customers cannot access the fixed-price benefits of renewable energy with them. Such unbundled purchases are falling out of favor with some corporations seeking additionality in their investment in renewable energy, i.e., that seek to promote development of new renewable energy sources to displace non-renewable energy in the energy marketplace.

For companies with urgent renewable targets to meet, Seeder recommends a combined approach of both on-site projects and off-site certificate purchase. As virtual PPAs are not yet a matured product in China, on-site projects, whether financed through a PPA or corporate investment, are still the most concrete way to build new renewable energy sources. Meanwhile, companies can purchase certificates fulfill the rest of their commitments to renewable energy.

Seeder helps our clients to structure on-site solar projects through PPAs or direct investment. And will be able to help them purchase green power certificates. To quickly see your solar capacity and potential savings, start with our solar calculator to get real-time results.

Seeder Wrap Up: Envision 2017!

In total, 2016 saw Seeder setting foot in six Chinese provinces and generating 29 potential projects totaling 46MW and are ready to close in 2017. We also expanded our partnerships and now have access to 5 top panel manufacturers, EPCs with experience developing over 5 GW of solar projects, and more than $4.3 billion in project capital seeking distributed solar projects.
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    Where Do We Go From Here?

Alex Shoer
CEO at Seeder Clean Energy
Alex Shoer
Seeder has been an evolving model since our earliest days building a collaborative network for the green building industry, followed by a green building technology market place, and for the last two years, a rooftop solar broker and integrator. We will continue to identify quality buildings for rooftop solar, educate the building owners and connect them with the best engineers and investors and taking care of all of the work, making solar no-cost and hassle-free.As we enter 2017 we are very fortunate that the industry is evolving so quickly. The problems of access to innovative solar financing models we were solving only a year ago are no longer such a challenge, so we’re now moving up the value chain to offer more comprehensive services an expanded sales network and turn-key solutions as the market is more robust with better quality players.Plenty of large systemic challenges still exist but we’re in a much better position to tackle them with our strong solar investment and development partners, 46 MW of solar project leads, our proprietary financial model, our online solar calculator, deep sales networks and stringent investor and EPC qualification criteria. Right now we are focused on projects with over 2,000 sqm of rooftop space and an average daytime electricity price of more than .7rmb /kWh but eventually we hope to open up solar financing to even smaller rooftops as we decrease the transaction cost and time for each project and help new capital reach the market.
14744792364612495
Meet Team SEEDER! China, USA, Belgium, and Sweden represented here.  
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The core Seeder team having some fun at our holiday party…
We wish you a happy, healthy and clean 2017!

Seeder Wrap Up: 2016 Highlights!

Seeder 2016 wrap up: A Year of Growth and Transformation

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Many would say 2016 was a tough year. But amongst many challenges, clean energy was the one area in particular that has seen tremendous progress. Across the globe, clean energy has grown quickly and solar, in particular, has seen the biggest gains of them all.

China has taken the lead in this transformation, formalizing – through its 13th Five-Year Plan – its 2020 solar energy target at 110 MW, doubling today’s capacity. The big growth will be in distributed solar, which composes 60 MW of the 110 MW target.

Distributed generation (DG) refers to electricity that is produced at or near the point of use and itis generally more efficient as it does not require long distance power transmission – a process that losses electricity and caps the volume of transmission.

Seeder is committed to facilitating the clean energy transformation as it’s a cornerstone of the sustainable future we believe in, and the severe air pollution – mainly a result of the country’s coal burning – sweeping across China in the first days of the new year only reminds us how urgently we need to act towards that future.

Some highlights of the China solar market in 2016:

–   The country achieved the 20GW new installed capacity target, in the first half of year. The whole year saw an estimated 30GW new capacity.

–   New 2020 solar installed capacity target set at 110GW, with 60GW allocated from distributed generation, a ten-fold increase from the capacity today.

–    Shanghai extended a local solar subsidy, and increased the subsidy for schools and nursing facilities from 0.25 rmb/kWh to 0.55 rmb/kWh and 0.4 rmb/kWh respectively.

–     Solar module prices have droppedmore than 30% this year and reached as low as 3.05 rmb/watt.

–    The world’s biggest solar project was announced to be built in northwest China and will total 2 GWp using more than six million solar panels.

Beside the impressive progress in China, other countries such as the U.S. and India are moving forward too. Bill Gates, JackMa and other investors around the world started the Breakthrough Energy Fund to support cutting-edge low carbon energy research.