China’s Green Electricity Certificates (GECs) are playing a key role in the country’s clean energy transformation, with a dramatic rise in issuance and trading signaling real progress. However, this rapid growth has introduced new challenges for regulators to manage. Discover how China is navigating the complexities of scaling its GEC market while maintaining credibility and boosting renewable energy.

China’s ambitious journey towards decarbonization is gaining momentum, highlighted by a remarkable increase in the issuance and trading of Green Electricity Certificates (GECs). At a recent press conference on July 31, the National Energy Administration (NEA) unveiled striking statistics regarding the power sector’s performance in 2024. Among them, a standout figure was the issuance of 486 million GECs in the first half of the year—a staggering 13-fold increase compared to the same period last year. Each GEC represents 1,000 kilowatt-hours of renewable energy, showcasing the significant strides being made in clean energy generation. Since the inception of this trading scheme in 2017, a total of 707 million GECs have been issued, with more certificates created in the first half of 2024 than in the previous six and a half years combined.

What Are Green Electricity Certificates?

GECs serve a dual purpose in the renewable energy landscape: they allow energy generators to supplement their income by selling these certificates, while enabling consumers to meet their compliance or voluntary decarbonization goals. In China, GECs are the sole means of proving that electricity comes from renewable sources. As the nation seeks to bolster its renewable energy consumption, GECs have become a crucial accounting tool for the market.

Factors Driving Growth

According to Anders Hove, a senior research fellow at the Oxford Institute for Energy Studies, the significant increase in GEC issuances this year is primarily attributed to a new NEA policy enacted in August 2023. This policy expanded the scope of eligible projects, allowing distributed renewable sources, offshore wind, and biomass generation firms to sell GECs alongside the large-scale wind and solar providers included in the scheme since 2017.

Sales of GECs also skyrocketed in the first half of 2024, albeit at a slower pace. The China Electricity Council reported that 187 million GECs were traded in the first five months of 2024, representing a remarkable 327% increase year-on-year.

Sharon Feng, a managing consultant at Wood Mackenzie, attributes this surge in demand to both international pressure on Chinese companies to decarbonize and the government’s push to meet domestic renewable power consumption targets. “International companies require their Chinese operations and supply chains to purchase green power to satisfy corporate net-zero targets,” Feng explains.

Price Dynamics in the GEC Market

Interestingly, the rapid increase in GECs has led to an oversupply in the market. With 486 million GECs issued and only 187 million traded, the imbalance has resulted in a drop in prices. While GEC prices ranged from CNY 30-50 (USD 4.25-7.10) in the first half of 2023, they plummeted to between CNY 1-10 by July 2024.

The August 2023 policy change also played a crucial role in this price decline. Before the policy, renewable electricity generators had to forgo central government subsidies to sell GECs, leading to a reluctance to sell at prices below the subsidy. Hove notes, “Prior to August 2023, the price of GECs was unofficially tied to the subsidy price. Adjusting that linkage has allowed the price of GECs to fluctuate, resulting in cheaper certificates.” This shift has enabled even generators still receiving subsidies to capitalize on selling GECs, providing them with a new revenue stream.

As the market undergoes this price-discovery process, we see signs of increased liquidity. For instance, during China’s Labour Day holiday in early May, GEC prices dipped below CNY 1 as factories shut down and electricity demand plummeted. In some regions, spot electricity prices even became negative due to an oversupply of midday power.

While negative pricing poses a challenge for energy generators, it also signals an inevitable aspect of ongoing market reforms. As China liberalizes its power sector, negative pricing is likely to become a regular feature in spot markets. The NEA has announced that by 2030, all renewable energy generators must sell their electricity at market rates instead of fixed prices to utilities. This transition will compel generators to find innovative ways to maintain profitability amid falling electricity prices resulting from increased renewable supply.

“Generators need to see a path to profit to have an incentive to build projects,” says David Fishman, a senior manager at The Lantau Group. “As green power projects are pushed into market trading, solar projects might face weak economics, with their primary value being their green credentials.” In this context, GECs play a vital role in stabilizing the revenue streams for renewable energy producers.

The surge in GEC issuance and trading is a promising indicator of China’s progress toward decarbonization and the reform of its power sector. However, this rapid growth also presents administrative challenges, as policymakers must ensure that each GEC is thoroughly verified and genuinely reflects clean energy entering the grid. As China continues its journey toward a sustainable energy future, the developments in the GEC market will be critical to watch, offering insights into the evolving landscape of clean energy in the country.

Administrative and Regulatory Hurdles

One of the key concerns is the limited international recognition of China’s GECs, an issue raised by Chinese media outlet Caixin. This is partly due to fears of double-counting, where a single unit of renewable energy could be counted more than once, undermining the credibility of GECs.

Since 2012, Chinese companies have been able to offset emissions using China Certified Emission Reduction (CCER) credits generated from projects such as afforestation or renewable energy. However, there is an overlap between CCERs and GECs, as both can be awarded to the same renewable project. To prevent this, the CCER scheme was suspended in 2017, the same year GEC issuance began, but it was relaunched in January 2024, reintroducing the risk of double-counting. For instance, offshore wind projects could receive both GECs and CCERs, potentially issuing two credits for the same unit of clean energy.

In September 2024, the Ministry of Ecology and Environment sought to address this concern by issuing a policy that prevents offshore wind projects from receiving both GECs and CCERs. While there has been no confirmed case of double-counting in offshore wind projects so far, the risk remains significant enough to warrant caution.

“There is still a reputational problem stemming from fears of double-counting GECs and CCERs for the same projects,” notes David Fishman, senior manager at The Lantau Group. “The number of companies intentionally double-counting is likely low, but the bigger issue is that there hasn’t been a clearly worded policy to prevent it.”

Balancing Growth and Credibility

China’s policymakers face a delicate task: they must promote the development of renewable energy and the GEC market while ensuring that the system maintains integrity. This is especially important as Chinese firms, many of which operate internationally, are the primary purchasers of GECs. A scandal around the credibility of GECs could harm their reputation and sustainability claims abroad.

One recent policy development highlights the balancing act required. In July 2024, the NEA announced that pumped-storage hydropower (PSH) projects are now eligible to issue and trade GECs. PSH projects help balance the power grid by storing excess renewable energy and releasing it when needed. This move marks a first for energy-storage projects, which have not typically been allowed to issue renewable energy certificates in global markets.

However, China’s GEC market has a unique rule: GECs can only be traded once. In practice, this means independent energy-storage projects that purchase green electricity cannot resell the GECs when they sell the stored power. According to Anders Hove, senior research fellow at the Oxford Institute for Energy Studies, this rule is unlikely to change. “There seems to be no understanding of why secondary trading would be beneficial,” says Hove.

The restriction on secondary trading may not be a significant issue for PSH projects, as they are often integrated with hydroelectric generation. The same company typically manages both the storage and the generation, so there is no need to transfer GECs when energy is stored—these certificates can be sold together with the stored electricity.

Unlike the more established renewable electricity certificate markets in the U.S. and Europe’s Guarantees of Origin (GoO) scheme, China’s GEC market is still in its infancy. With trading volumes only beginning to take off, the system faces growing pains that policymakers are keen to address.

The key challenge for China’s regulators will be striking the right balance between rigorous verification of GECs and providing sufficient incentives for renewable energy development. The rapid pace of GEC issuances shows the system’s potential, but if administrative weaknesses—such as double-counting or lax oversight—persist, the market’s credibility could suffer, both domestically and internationally.

As China’s clean energy ambitions continue to grow, so too will the importance of a well-regulated and credible GEC market. With the proper safeguards in place, GECs have the potential to play a crucial role in helping China meet its decarbonization goals while contributing to the development of a flexible and sustainable power grid.