China`s nascent green electricity trading scheme has attracted keen interest from multinational companies seeking to offset their carbon footprints in the country. But supply has been limited in a partially reformed market that is still heavily reliant on state guided power distribution. Also making it challenging for buyers and sellers to agree to deals especially long term ones is volatile global energy supply and prices amid heightened geopolitical uncertainties sparked by Russia`s invasion of Ukraine.
Green power demand is strong in China as more companies hear that green power purchase agreements are now possible and available, said David Fishman, a Shanghai based senior manager at energy consultancy The Lantau Group, which helps large power users secure green energy supply. The prices and volumes of bilateral deals done through the scheme administered by the staterun green power exchanges in Guangzhou and Beijing are not made public.
In the past 12 months, German chemicals giant BASF has clinched three power agreements under the scheme for its US$10 billion wholly owned petrochemical complex in Zhanjiang, western Guangdong province. These are key for BASF to achieve its plan for the facilities to be completely powered by green energy. Plants at the site, its third largest production base globally, will gradually come on line between late this year and 2030. The deals will also help the company reach its ambition to become carbon neutral by 2050, and contribute toward China`s goals of peak emissions by 2030 and carbon neutrality by 2060.
A deal with China Resources Power a year ago was billed by BASF as a landmark initiative to open up a new green energy business model, as it was the first company to buy renewable energy under the scheme. It was followed by a 25 year framework agreement in March with State Power Investment Corp for the supply of onshore wind and solar power, and a 25 year supply contract last month with Brookfield Renewable. The Canadian firm, part of Brookfield Asset Management, will build dedicated solar and wind farms as well as energy storage facilities to support BASF`s Zhanjiang complex.
It was an unprecedented longterm, fixed price deal in China that allows the consumer to decarbonise in a measurable, auditable and reportable manner, said Daniel Cheng, Brookfield`s renewable power and transition managing director. Brookfield entered China`s renewable energy market in 2017 with the acquisition of 168 megawatts of generating assets. Its China asset portfolio has since grown to 4,200MW. Still, many green power project owners have elected to sell their output to the state owned grid operators, instead of going to the trouble and cost of registering in the open markets under the scheme, Fishman said.
Public market prices are high, but extra work isn’t worth the extra work for many generators, he added, adding that it doesn’t need to be sold in the open market until 2030. In March, BASF rival Covestro’s Chinese boss Holly Ray Fanli said the company wanted to buy more green electricity through long-term contracts, but its supply was limited. We were able to purchase a premium enough to meet 10% of the annual demand at our Shanghai plant, the world’s largest manufacturing facility. According to Fishman, long-term bilateral green power trading pricing is currently priced given the rising costs of solar systems due to material shortages and rising fossil fuel prices during the Ukrainian War. extremely difficult.