Decarbonisation & Power Purchase Agreements – An economic Analysis of the regulatory Status Quo in China

Abstract

Since January 2020, the Chinese Renewable Portfolio Standard (RPS) is in force and aims on paving the way for China to realise its ambitious climate target of reducing 18% tCO2e during the 14th Five-Year Plan until 2025. Especially in terms of electricity-related greenhouse gas emissions, corporates are increasingly under pressure to decarbonise their business cases in order to maintain access to capital markets. The paper provides an overview of available contractual solutions for reducing the corporate carbon footprint according to Sustainable Development Goal No. 7 and 13. In this context, Power Purchase Agreements (PPAs) are analysed as an alternative way to realize corporate sustainability goals in China. The paper also identifies main structural challenges in the Chinese PPA market and provides regulatory recommendations to enable corporates to secure their access to renewable energy via PPAs. By analysing the green electricity certificate (GEC) system under the RPS scheme, both high regulatory risks and the phenomenon of double counting are identified as two of the main challenges. A further finding is that the current short-term tenor of PPAs does not incentivise RE asset owners to contract with private institutions, which from the corporate’s point of view leads to a limited availability of qualified renewable energy assets. Besides that, the lack of inter-provincial PPAs hampers the corporate decarbonisation since the corporate electricity load is usually not located in the resource-rich Northern and Western provinces.