In late March, the price of a Green Electricity Certificate (GEC) seemed to be changing daily in China.
Each one represents the generation of one megawatt-hour of clean electricity, and in February the cost had hovered at around CNY 1.
By 24 March, that had risen to CNY 1.2, and three days later to as high as CNY 1.8. By April, the average price traded nationwide was CNY 2.31, a month-on-month increase of 63%, according to National Energy Administration data.
What caused the spike? In short, buyers representing big electricity users in Guangdong.
The manufacturing province had issued a new policy in late 2024 stating that green electricity purchases by local firms would now be a factor in evaluating local officials’ performance. That instantly made GECs a must-have for companies wanting to stay on the right side of the authorities.
Guangdong’s move chimes with a policy signal sent by central government on 6 March this year. A document issued by five government bodies, led by the National Development and Reform Commission, stated that businesses in energy-intensive sectors will be required to buy GECs. These sectors include iron and steel, nonferrous metals, construction materials, petrochemicals and chemicals, and data centres.
There was no timeline on when the policy will be introduced, but by 2030, relevant companies must be able to prove that the share of renewable power in their overall consumption at least matches that of China as a whole – currently about 35%. Newly built data centres at national computing hubs will see their target raised above the existing 80%.
In 2023, the government made GECs the primary way for companies to prove they were using green electricity. But this was still optional, and a lack of demand meant prices languished at around CNY 0.70-0.80, even falling to CNY 0.15 in late 2024. Now prices have risen and the market is buzzing, as central government sends clear signals that the certificates are no longer optional, and Guangdong has started using them to assess local officials.
In the future, China will need GECs to play an even bigger role in the electricity ecosystem.
From voluntary contributions to sole cID for green electricity
Initially, when the certificates were created in 2017, their purchase was entirely voluntary. For renewable generators, they were meant to provide an alternative revenue stream to government subsidies.
Up to 2020, less than 30,000 were bought and sold every year, on average. Wind power firms, for example, preferred to wait for their government subsidies rather than sell off certificates too cheaply. For electricity users, the certificates seemed to be an unnecessary expense. Companies that needed to prove they were using green electricity, because of buyer requirements or their own voluntary commitments, preferred International Renewable Energy Certificates, or I-RECs. The market for China’s own certificates were, for the first few years, dormant.
Things started to change in 2023. That August, the government clarified that GECs were China’s only recognised proof of the production and consumption of renewable electricity.
For the next year or so, the focus was on full coverage – making sure that all China’s green electricity had a certificate to prove it.
In 2024, China generated 3.46 trillion kilowatt-hours of renewable electricity – 35% of all its power output, according to the National Energy Administration. But the number of GECs issued only covered 13.7% of this renewable generation. Some companies clearly didn’t see the need to prove their green credentials.
Supply-and-demand issues soon became apparent. GEC trading has been increasing over the years, but prices have been falling. There were 1.45 million traded in 2022, rising to 57 million in 2024. During which time the price fell from CNY 28.1 to CNY 9.6.
In 2024, the number of GECs traded represented only 8.1% of those issued. The significant oversupply was a result of businesses preferring to stand back and wait.
There were particular imbalances across regions. Certificates were much more expensive on the south-eastern coast than in the north-west because exporters needed plenty of GECs to meet the requirements of the EU’s carbon border tax.
In the first half of 2024, a GEC in Inner Mongolia and Gansu cost an average of under CNY 3 for a long time, compared to the national average of CNY 9.6.
This is partly a supply issue. Northern areas with plenty of wind and sun, such as Inner Mongolia and Ningxia, have plenty of renewable power generation. There are also many older, centralised renewable power stations issuing GECs, making for plenty of supply.
But it is hard to get electricity from the north-west to other parts of China, and physical delivery has to be possible for a GEC to be issued. The transmission costs (for using provincial interconnectors and other services) would have to be paid by the buyer, so less trading takes place.
China Southern Power Grid, in contrast, was able to increase the amount of renewable electricity delivered, thanks to existing west-to-east lines. In 2024, cross-provincial trades there made up 30% of the total, much more than in the north. Differences in supply and demand and provincial connections mean the GEC markets in the north and south have been diverging.
How much demand will there be?
The intent of China’s policy is clear: turn GECs into easily traded assets representing environmental value and so spur the creation of a market ecosystem for renewable electricity.
Possible obstacles have been cleared away in short order. For example, the environmental attributes of green electricity can be expressed both in terms of power generated or carbon emissions avoided. There was debate over whether those attributes should be traded on carbon markets, or on green electricity markets. If both, how to avoid double-counting? And how should companies decide which to opt for?
Then, in February of this year, the National Development and Reform Commission and National Energy Administration stated that all renewable power will be traded on the electricity markets, at market prices. In March, the compulsory purchasing of GECs was announced.
Zhang Xiaobin, executive vice director of the Shandong Solar Energy Industry Association, summarised the new approach as “reasonable and expected”. It was certainly expected: 2024 saw a pilot in which aluminium makers had to use green electricity for a percentage of their power consumption – 70% in Yunnan, Qinghai and Sichuan. The policy direction has been clear for the last two years. The only uncertainty has been how far it would go. Zhang also described the policy as “wide-ranging and influential”.
So, how much demand will there be? On 2023 power-consumption figures, the iron and steel, nonferrous metal and chemicals sectors would need a total of 900 million GECs. Those power-hungry sectors have more or less stopped growing, so that demand will remain stable.
Meanwhile, BloombergNEF predicts that by 2035 China’s data centres will need about 320 million GECs a year. Add the two together and by 2035 you have annual demand for 1.22 billion GECs, or 26% of the 4.734 billion issued in 2024. At CNY 5 to 8, those sales would be annually worth CNY 6.1 billion to 9.76 billion (USD 848 million to 1.4 billion).
Remaking the global electricity market
Another important issue is how far will China’s GECs circulate on international markets?
In 2024, China became the world’s biggest market for renewable-energy certificates, with 446 billion kilowatt-hours traded. The surge of China’s GECs is sure to remake the global market in green electricity.
In the past, Chinese exporters were inclined to buy overseas certificates, as it was overseas buyers requiring them to use green power.
In March this year, I-REC withdrew from the Chinese market and, once renewable generators have sold off existing I-REC stock, the GEC will be the only option. Generators, buyers and service providers will no longer need to make a choice between using GECs or I-RECs.
International trading of GECs is also on the rise, mostly in EU nations, followed by Southeast Asia.
A deal between China and Laos on the China-Laos railway requires the exclusive use of renewable electricity to power the trains, accompanied by GECs. This was the first time the purchase of GECs has been required as part of an international infrastructure project.
China is also using the Shanghai Cooperation Organisation to encourage recognition of GECs. Firms from Russia and Kazakhstan have purchased GECs, using Chinese yuan, to comply with the EU’s carbon border tax. The Guangzhou Power Exchange Centre, meanwhile, is set to build an international electricity-trading mechanism, and GEC trades will naturally make up a significant part of that. Overall, a strong policy boost has pushed GECs out of the doldrums of late 2024.
Looking forward, it is likely that GEC prices, having rapidly risen, may see instability in the short- to mid-term. Pricing of 2024 GECs and the new 2025-issue GECs is diverging: the certificates are valid for two years from when the electricity was produced, so the earlier issue will expire at the end of this year and prices may fall as holders try to offload stock. Also, specific details on GEC-usage requirements and cross-provincial allocations have not yet emerged, so the market is waiting to see what happens.
I predict that, once the compulsory purchase of GECs is up and running, we will see supply and demand in the GEC market even out in 2027, leading to more stable pricing. Once pricing, international recognition and circulation are clearer, focus will shift to derivative financial products based on GECs. Then, the challenges will be the rate of GEC issuance and cutting-edge technologies likely to have a significant impact on the future green electricity market. Issues at play will include the ability of blockchain systems to cooperate, data governance, derivative product risks, and the standardisation and roll-out of new models such as “virtual power stations”. Such a station uses software to manage small energy sources, like solar panels, batteries or electric vehicles, as if it were a single power plant.
