Renewable energy quota system: the point of action should be on the demand side, which is both close

2019-11-28 11:59

The National Energy Development Strategy Action Plan (2014-2020) clearly states that by 2020, China's proportion of non fossil fuels in primary energy consumption should reach 15%. To achieve this strategic goal, renewable energy represented by wind and solar power cannot be absent. However, after experiencing severe wind and solar abandonment issues in 2016, the reform of renewable energy policy mechanisms is urgent.

Counting the incentive policies for renewable energy in foreign countries, they can be mainly divided into two categories: one is the fixed electricity price model, which supports the development of renewable energy through electricity price subsidies; The other type is the "renewable energy quota system+green certificate trading" model. Amidst the increasing phenomenon of abandoning wind and light, and the difficulty in obtaining subsidy funds, there is an increasing discussion in China about the latter policy model.

Since the official proposal of the renewable energy quota system in China in 2009, there has been more discussion than action and more debate than consensus, and it has not yet been officially implemented. In February of this year, the National Development and Reform Commission, the Ministry of Finance, and the National Energy Administration jointly issued a notice on the trial implementation of the renewable energy green power certificate issuance and voluntary subscription trading system. The voluntary subscription trading was launched on July 1st, once again showing the outside world the "dawn". However, the current understanding of the renewable energy quota system by government departments is not sufficient. To make this system truly effective, it is necessary to learn from international experience and have a more comprehensive understanding of its operating mechanism.

The point of action should be on the demand side

The renewable energy quota system is a policy that focuses on the demand side, rather than stimulating the supply side. More than 30 states in the United States have implemented renewable energy quota systems, most of which do not target power generation companies, but rather the counterparties of power generation companies - purchasing entities, which stipulate that power purchasing companies in the wholesale electricity market must have a certain proportion or quantity of their purchased electricity from renewable energy. This is very important. If we blindly stimulate the supply side and demand power generation enterprises, the electricity generated will not be connected to the grid, and can only make the phenomenon of wind and solar abandonment that has plagued the energy industry for many years more and more serious. Put forward requirements for the demand side. In order to meet legal regulations, the demand side will naturally search for and purchase renewable energy electricity through the market. This way, power generation enterprises and independent power producers focused on renewable energy development have a market, which gives them the motivation to continue developing renewable energy.

The current domestic policies do not pay close attention to this point. In April 2016, the National Energy Administration, which is eager to develop renewable energy, once again issued a major move, issuing a notice on the requirements for establishing a quota assessment system for non water renewable energy generation of coal-fired thermal power units. It explicitly stated that the proportion of non water renewable energy generation quotas to thermal power generation undertaken by each coal-fired power generation enterprise in 2020 should be above 15%. This requirement has two drawbacks: being forward and whipping on the supply side can indeed promote the increase of renewable energy generation installation and capacity, but what if it cannot be absorbed? We can only go to power grid companies again, and this practice of treating headaches and foot pain is often laborious and thankless. Secondly, the requirement should be placed on existing thermal power enterprises, disregarding their technological and comparative advantages in the field of thermal power. It is better to use market means to let those enterprises with technological advantages in renewable energy generation bear the heavy responsibility of renewable energy development. An effective measure to achieve this is to establish a feasible trading system for renewable energy green power certificates (referred to as "tradable renewable energy credit vouchers" in the United States).

In the process of formulating policies targeting the demand side, it is worth emphasizing that legislation on renewable energy quota systems usually sets specific quota requirements (proportion or quantity), but it does not mean that the higher the quota, the greater the policy strength. The policy strength generated by the quota system will also be influenced by many factors, such as policy coverage. In some states in the United States, such as Maryland, Iowa, Texas, Hawaii, Minnesota, and Wisconsin, all electricity sales enterprises are subject to legislative constraints; But in Montana, the quota system only targets private capital established electricity sales enterprises, and about 55% of the electricity market is not bound by this system. The smaller the policy coverage, the smaller the policy intensity. For example, in the treatment of existing renewable energy installed capacity, in some states in the United States, such as Arizona, Massachusetts, Montana, and Vermont, only the newly added installed capacity after the establishment of the quota system can be used to meet the quota requirements. However, in most states, the existing installed capacity at the time of the establishment of the quota system can also be used to meet the quota requirements. Under the same quota indicators, restricting the addition of new installed capacity to meet quota requirements will undoubtedly effectively increase policy intensity. These experiences from abroad remind Chinese policy makers that although development goals are important, when formulating policies, it is even more important to consider numerous design elements that may affect policy strength.

Green card trading should be a game of chess for the whole country

The renewable energy quota system is a system that focuses on the market, rather than planning. Therefore, another important design element of the renewable energy quota system is the renewable energy green electricity certificate trading system. All electricity produced by renewable energy power generation enterprises will receive green certificates, which can be freely traded in the market. In this way, the electricity purchasing entity can have multiple ways to meet the quota requirements: it can directly purchase the electricity generated by renewable energy generation enterprises; When there are problems with power transmission, it can purchase green certificates from renewable energy generation companies to meet quota requirements. This system endows renewable energy electricity with two commodity attributes: one is normal electricity, which is sold in the market like thermal power; Another type is the green certificate that characterizes its ecological attributes, which can also be sold through the market to obtain profits. Under the requirements of renewable energy quotas, electricity purchasers have the incentive to purchase green certificates because they face fines that are usually several times the market price of green certificates if they fail to meet regulatory requirements. Only by using fines as a 'big stick' can an active green card trading market be formed.

The lack of a renewable energy quota system in the green certificate trading market can only be a reprint of traditional planned economy thinking, forcing power generation enterprises and purchasing entities to develop a certain proportion of renewable energy through command and mandatory means, which will inevitably bring huge pressure on enterprises to increase costs. The purpose of designing a green card trading system is to minimize costs through market trading mechanisms, while determining the goal of achieving the total development of renewable energy. Through market transactions, in the development of renewable energy, thermal power enterprises without advantages do not need to develop wind and solar power, but rather rely on renewable energy power generation enterprises with technological advantages to undertake this task.

In the United States, almost all states have established green card trading systems, but in a considerable number of states, green cards only allow intra state transactions. Policy makers believe that allowing cross state transactions would reduce the promoting effect of quota systems on the development of renewable energy in their respective states. Although restricting out of state transactions can protect local interests, it is not conducive to reducing the overall cost of renewable energy generation, which goes against the original intention of institutional design. The Chinese government has greater authority and is more likely to break through this local protectionism and establish a unified green certificate trading market nationwide. Currently, the China Green Power Certificate Subscription and Trading Platform, which undertakes the task of voluntary subscription and trading of green certificates nationwide, has achieved a good start. In the future, this unified market should be avoided from being fragmented.

As a responsible major country, China has made solemn commitments to the international community to reduce carbon emissions and develop renewable energy. When formulating relevant policies, it is necessary to be both cautious and cautious. How to achieve greater policy effects at a small cost, and how to balance the relationship between economic costs and environmental protection require policy makers to always maintain a clear and rational policy formulation approach.