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China’s New Green Power Market Increases the Value of Renewables


To achieve its climate pledges, China has proposed building a zero-carbon power system, gradually upgrading the energy mix through reducing coal consumption and increasing renewable energy generation. In 2021, driven by both policy initiatives and market forces, China officially launched its green power trading market, ushering in a new wave of growth in green power transactions. The substantial increase in the demand for green power is expected to drive up the value of green power assets, which will help attract more investors to participate in renewable assets development and accelerate the decarbonization of the power system under the country’s carbon-neutrality goals.

A New Stage of Development

According to RMI’s analysis (see Exhibit 1), China’s green power market development has gone through three phases in the past decade: emerging, transitioning, and growth.

Exhibit 1. Development Characteristics of Each Stage of the Green Electricity Market

Growth rate of renewable electricity capacity

At any point in the market development, the most critical factor that affects the value of green power assets has always been the expected revenue of those assets. When the uncertainty of the projects’ cash flow was high, the value of green power assets decreased, lessening their attractiveness to investors and thus decreasing the growth rate of installed capacity. Similarly, when the expected inflow was promising, the value of green power assets increased, attracting more investors and boosting the growth of installed capacity.

The market expectations on the revenue of green power assets differed in the three market stages, which in turn had an impact on the characteristics of the growth trends of renewable electricity capacity.

  • In the emerging phase, government subsidies played an important role in capacity growth. A combination of guaranteed purchase of renewable electricity and a feed-in tariff ensured that new green power projects would enjoy a stable stream of revenues. As such, investors were incentivized to invest, and the installed capacity of renewable electricity grew rapidly.
  • In the transitioning phase, due to the receding subsidies, the growth of renewable capacity fluctuated. A hard decline for subsidy eligibility induced an artificial rush of green power capacity installation, which led to a subsequent stagnation. As the market mechanisms were not fully established at the time the subsidy receded, there was a lack of sales channels for green power, which increased the uncertainty of income for renewable projects. Consequently, project risks rose, and investors remained cautious waiting for clear signals to arise.
  • In the growth stage, China’s green power market entered a phase of market development with the launch of the national green power trading pilot in September 2021. The new trading pilot highlights further leverage of market forces, particularly the interactions between supply and demand, to encourage general market growth. The opening of green power trading expands sales channels for asset owners, while helping investors better estimate expected cash inflows based on trading activities. The market reflects the needs and earning prospects of renewable assets, which signal appreciated valuation of renewable assets and promote the sustainable development of the market.
Three Measures to Enhance Cash Flow Projections

In 2021, China introduced a series of measures to stabilize the future cash flow and secure the satisfying valuation of green energy assets. With policy interventions, policymakers hope to utilize the “dual engine” of policy and market forces to further promote investments toward green power assets, and ultimately decarbonize the power system and contribute to the national carbon neutrality goal. These measures were designed to address the challenges from three different aspects: infrastructure, market mechanism, and policy incentives.

1. Power Grid Upgrades

Due to the geographical disparity between wind and solar resources and electricity demand, bridging supply and demand across regions is essential to fully tap the market potential of green electricity. Interprovincial transactions are crucial to further develop the green power trading market and will help establish rational and stable tariffs for a more accurate valuation of green power assets.

From an infrastructure perspective, power transmission capacity is the basis for the realization of interprovincial transactions, providing sales revenues for future renewable developments. Significant progress has been made in the construction of ultra-high-voltage (UHV) transmission lines that can adapt to the volatility of wind power and solar photovoltaic projects. For example, Qinghai-Henan UHV has a transmission capacity of 8 million kWh, transmitting more than 13 billion kWh of power in the first year of commission and providing an outlet for renewable energy generated in Qinghai. In addition, 17 provinces have formalized the construction of UHV transmission projects as a work stream and goal in their 14th Five-Year Plan. Construction has already begun on the first one, the Nanchang-Changsha 1,000 kV UHV alternating current line.

2. Market Mechanism Diversification

With the advancement of electricity market reform, interprovincial and intraprovincial green power trading pilots were able to be carried out in multiple trading centers, breaking down the barriers of administrative divisions for the consumption of renewable energy. Green power generation companies have been granted access to an increasing number of provincial power trading centers, where they are allowed to directly set up mid- to long-term deals with power users and retailer companies. The National Development and Reform Commission and the National Energy Administration jointly issued the “Response to the State Grid Inter-Provincial Electricity Spot Trading Rules” in November, clearly stating that users with green electricity demand should be given priority for direct transactions with renewable energy generation companies in the implementation of interprovincial electric spot trading.

With the launch of the national green power trading pilot, more power generation companies and power users can utilize the medium- and long-term transaction model to purchase and sell electricity, to mitigate the uncertainties throughout the project life cycle. The transactions are organized mainly through bilateral negotiation and supplemented by centralized matching and listing. Currently, 22 provinces have issued trading rules to allow green power to participate in mid- to long-term power trading.

Through green power trading, renewable asset owners boast an additional channel to generate income. The intrinsic tie between supply and demand and price will help monetize the environment and economic value of green energy, increase the profit of green power projects, stabilize the project’s revenue stream, enhance the return on investment, and ultimately attract more capital to promote the transformation of the power market.

3. Demand-Side Policy Incentives

The “dual-control” policy clearly states that renewable consumption exceeding the minimum quota is excluded in the assessment of regional total energy consumption. The provinces immediately responded by releasing relevant plans. This exclusion provides further incentives to local authorities to promote green power consumption, which in turn increases the revenue flow of green power projects. The following table summarizes the relevant documents of some provinces.

Exhibit 2: Policy Documents
Province/City Policy Document
Zhejiang Implementation Plan of Renewable Energy Power Consumption Guarantee (Draft for Comments)
Implementation Opinions on Promoting High-Quality Development of Zhejiang Province’s Renewable Energy Industry (Revised)
Guangdong Guangdong Province’s Work Plan on the Dual Control of Total Energy Consumption and Energy Intensity (2021)
Ningxia Ningxia Province’s Three-Year Action Plan on the Dual Control of Total Energy Consumption and Energy Intensity (2021-2023)
Liaoning Liaoning Province’s Implementation Plan of Renewable Energy Power Consumption Guarantee (Draft for Comments)
Henan Henan Province’s Implementation Plan of Renewable Energy Power Consumption Guarantee (Draft for Comments)
Chongqing Chongqing Municipality’s Implementation Plan of Renewable Energy Power Consumption Guarantee (Draft for Comments)
Guangxi Notice on Resolutely Guaranteeing the Supply of Energy and Power
Beijing Beijing Municipality’s Work Plan of Renewable Energy Power Consumption Guarantee (Provisional)


Locking In Key Investments

Against the backdrop of the energy transition, there is still a capacity gap of 619 million kW to reach the 2030 target of 1.2 billion kW of total installed wind and solar capacity set out in the climate pledges. While state-owned enterprises led the way in the early development of the renewable market, support from the capital market will be the driving force to further increase the installed capacity of green power in China. The appreciation of green power assets will increase the attractiveness of renewable projects to private capital, locking in key investment toward the zero-carbon transformation. To achieve these ambitions, China should focus on the following three key issues:

1. Sustainable Capacity Development

To meet the increasing appetite for green electricity and the energy transformation goals, additional renewable projects need to be developed. As reflected in the market feedback from the national trading pilot, affordable green power is still in short supply, even though China’s installed renewable capacity is the world’s largest. Although continuous investments from state-owned power generation companies can be expected, active participation of private developers and the support of the capital market are indispensable to accelerate market growth.

2. Coordination Between Market Mechanisms

In addition to the green power market, the green certificate system and carbon market are also developing rapidly. While the parallel development of multiple market mechanisms creates diversified revenue channels for enterprises and green power developers, it brings “double counting” risks of environmental attributes and complicates the formulation of corporate carbon-neutral strategies. The national green power trading pilot program has tried to integrate certificates with electricity transactions. In the future, the linkage mechanism between the corresponding markets is expected to be gradually clarified, so that market participants can participate in various transactions more comprehensively and effectively, and better achieve the emissions reduction goal.

3. Improve Market Information Transparency

With the gradual accumulation of price information from trading activities in the spot market, more accurate future electricity price trends are expected, which helps increase confidence in signing longer-term power purchase agreements. In mature markets, the signing of medium- and long-term power purchase agreements can be done during the design and legal filing stage of a new energy project, which can directly incentivize newly installed capacity. A long-term and stable cash inflow can provide financing guarantee for renewable energy projects, control risks for developers and financial institutions, and reduce project operating costs.

As the demand side gradually matures, the design and operation of China’s green power market will continue to advance, and the value of green power assets will be systematically increased through revenue improvement. Therefore, further mobilizing the capital market is vital to the zero-carbon transformation of the power market.