Green power trading:Does it meet the power purchase agreement requirements in international rules?
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Southern Energy Watch
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Zheng Ying
Director of Beijing Power Chain Technology's Dual Carbon Business Unit and Invited Researcher of China Carbon Neutrality Fifty Forum
With the formulation of mandatory rules such as the EU Carbon Border Regulation Mechanism (CBAM) and the new EU Batteries Regulation, as well as the rise of voluntary action plans such as RE100 (Renewable Energy 100%) and SBT (Scientific Carbon Targets), more and more companies are facing requirements for indirect carbon emission accounting or renewable energy electricity. In the power procurement model, PPA (Power Purchase Agreement) has become a hot topic at home and abroad since it is mentioned in most rules. Related discussions mainly include:The first is what the PPA in the rules is; the second is whether China's green electricity trading mechanism is consistent with the PPA required in the rules.
What is PPA refered in CBAM rules
To respond effectively to the hot issues, it is first necessary to figure out exactly what is defined as PPA in various international rules and what the core targets that need to be achieved by relying on PPA are. This article starts with the CBAM, which has attracted the most attention in the industry and is also a typical carbon emission accounting rule.
As the first officially implemented carbon border adjustment mechanism, CBAM measures have far-reaching significance for the formulation of global sustainable development policies. For the sectors included in the first batch, such as steel, aluminum, and fertilizer, with the upgrading of industrial technology, electrification will become an important direction for optimizing their energy structure, and the calculation of indirect emissions generated by the use of electricity has also become a focus of attention.
Under CBAM, indirect emissions in electricity are mainly calculated using electricity emission factors and electricity consumption. It can be divided into two categories: the first category is calculated using the default indirect emission factor, and the second category is calculated using the actual indirect emission factor. The type that can be used to calculate the actual value in the second category includes PPAs. The definition of PPAs in the CBAM Regulation is a contract signed by someone agreeing to purchase electricity directly from a certain electricity producer. In the implementing rules for the transition period, the method for calculating the actual indirect emission factor of PPA electricity is to receive electricity from the electricity producer according to the power purchase agreement, and then the electricity emission factor determined according to D.4.1 (non-CHP unit) or D.4.2 (CHP unit) can be used as appropriate, and the relevant report shall be provided by the power generator.
It can be seen very clearly that the main responsibility of PPA in CBAM is to clarify the source of electricity and electricity to calculate the function of actual implied indirect emissions. The EU also clearly wrote that "For imported electricity and commercial electricity, in order to prevent and avoid risks and improve the traceability of actual carbon dioxide emissions, the calculation of actual emissions should only be allowed under certain strict conditions. In particular, it is necessary to demonstrate a direct contractual relationship between the specific allocation of interconnected capacity and between the purchaser and producer of renewable electricity, or between the purchaser and producer of electricity with emission levels below default values." ** These regulations clearly strengthen the core requirement of traceability of actual indirect emission accounting. Therefore, in the series of documents currently issued by CBAM, there are no more requirements for the specific content of the PPA signing except that the PPA is directly signed by power generation and electricity consumption, and the power generator reports unit emission information. **
What is a PPA for RE100?
RE100 is a representative of another type of rule that promotes the development of renewable energy power in addition to CBAM. As one of the world's largest renewable energy use initiatives, the goal of RE100 is to promote participating companies or organizations to achieve 100% renewable energy utilization by 2050.
With its vast influence on global industry supply chains, RE100 is one of the internationally recognized gold standards for renewable energy procurement and utilization. It currently recognizes five types of renewable energy procurement methods: on-site corporate facility generation, direct procurement from generators (PPA), signing contracts with electricity retailers, unbundled energy attribute certificates (EACs), and passive purchasing.
** Different from the main functional positioning of PPA in CBAM, PPA in RE100 also assumes the responsibility of promoting investment, construction and consumption of renewable energy projects on the basis of meeting traceability requirements. Therefore, RE100 has more detailed and strict requirements for PPA.: **
In terms of type, the PPAs recognized by RE100 include physical PPAs and financial/virtual PPAs. The physical PPA projects include purchases of third-party-owned on-site projects, off-site projects with direct lines or grid-connected projects, meaning that both direct PPAs and grid-connected PPAs can be recognized. Financial/virtual PPAs are in essence contracts for difference, and their main function is to hedge against electricity market price fluctuations, without actual power delivery.
Secondly, in terms of timing, RE100 mentioned that both physical PPAs and financial/virtual PPA power purchase agreements usually have long-term contract terms.
Third, in terms of balancing responsibility, physical PPA may be a PPA signed by three parties for issuance, and the signing parties may not be just power generators and power purchasers, because RE100 mentions that PPA requires users to take the balancing responsibility of power consumption, and it can be executed by a third party (power distributor) when users do not have the ability to take the responsibility.
Finally, RE100 specifies that bundled EACs (Energy Attribute Certificates) are required in order to demonstrate electricity source and attributes, both for physical PPAs and financial/virtual PPAs, and if no EACs are available, credible evidence must be provided.
Are Green Power Trading Policies in China Consistent with …?
Do the PPA requirements in the international rules match?
I believe we should consider each case individually for this hot topic, and avoid generalized responses.
Different rules give different goals to PPA, so the focus of expression is also different:For example, the amount of electricity covered by PPA in CBAM can be reported based on actual indirect emissions. PPA is responsible for indicating the source of electricity and produced electricity, which is a substantial traceability. ** CBAM does not require PPA to assume the function of promoting the development of renewable energy in a country, but the goal of RE100 is to increase the construction and consumption of renewable energy power. Therefore, in addition to traceability, RE100 has added contract types and expressions such as power forms and balancing responsibilities are intended to form long-term incentives for the development of renewable energy and ensure the stability of renewable energy production and consumption. **
Looking at the global market, there is no unified standard for PPA. Due to the different development stages, mechanism design and construction goals of the power market in various countries, the practical operation models of PPA are also different. Therefore, it is impossible to compare with other countries 'PPA to draw a conclusive conclusion. For example, in terms of contract duration, although Europe and the United States usually have long-term PPA of 10-25 years, countries such as Japan will also have short-term PPA of 2 years; In terms of operation methods, Europe's PPA is usually a financing PPA because it takes into account the functions of expanding renewable energy installed capacity and promoting renewable energy power consumption. However, ** In China, the proportion of renewable energy installed capacity is already high, and green power purchase agreements such as electricity transactions mainly solve the problem of renewable energy consumption rather than financing construction. This difference is also reflected in the RE100 rules. RE100 's mandatory description of PPA includes contract type, power purchase model, traceability, etc., but adopts non-mandatory secondary descriptions such as "not necessarily" or "usually" for the contract duration and whether the electricity user needs to balance responsibilities. **
In CBAM, which is most discussed, the author believes that under the current regulatory requirements, green electricity transactions meet the PPA definition and actual usage targets of CBAM. 首先，中国的绿电交易合同签署方是发电与购电双方，满足CBAM要求发电和用电双方直接签署合同的定义； 其次，即使欧盟参考RE100的规则，为了确保其强调的“可追溯”性，考虑用EACs对PPA合同上双重保险，绿电交易中获得的中国绿证GEC作为国家能源局签发和管理的官方能源属性证书，也可以实现对可再生能源电力属性的追溯， Of course, in that case, GEC's attribute traceability standard can be certified and accepted ；最后，笔者大胆判断，作为一项面向全球推出的规则，欧盟未来很难在CBAM等规则中对PPA做出更详细的针对合同期限、合同价格、平衡责任等内容的要求，因为以上内容对CBAM核算实际间接排放来说并不是最相关的，且欧盟应该深知各国电力市场中PPA操作模式各有不同，而对于PPA核算实际间接排放这一项工作，只要各国PPA符合CBAM对其的定义和溯源要求，就已经足够了。
Regarding rules such as RE100, the author believes that there is much room for discussion on whether China's green electricity trading can be accepted as a PPA. RE100在最新技术导则中明确提到中国的可再生能源电力中长期交易不是PPA，因为RE100认为“中国的可再生能源电力中长期交易不是由发电和购电直接签署”，这个结论完全是基于RE100对中国绿电交易认知上的不足而得出的，但除此之外，RE100并未就其他技术要求对中国绿电交易提出质疑，因此后续与RE100的探讨空间还很大。事实上，在RE100中，中国的绿电交易可以另一种形式被合规报告，暂不存在使用障碍。 The most urgent matter to be resolved now is the unrestricted use of China Green Certificate GEC by RE100 to meet the demand for large-scale industrial manufacturing of green purchases for compliance reporting.
Electricity carbon emission accounting, as one of the intersections between the power industry and greenhouse gas carbon emission accounting, has attracted widespread attention and discussion. However, the author found that when discussing this work, all walks of life often focus too much on the characteristics of their own industries and ignore the understanding of the design goals of the rules, resulting in some discussions that go far beyond the requirements of the rules themselves. PPA is one of the typical examples. As a form of power purchase that has developed rapidly in recent years, PPA has many directions to discuss. However, from the perspective of policy compliance, whether green power transactions are consistent with the PPA requirements in various rules is the most important thing. On the basis of understanding the design of the rules, determine whether the green power trading mechanism meets the definitions and core points clearly mentioned in the rules, rather than simply taking whether China's green power transactions are consistent with the actual operation of PPA in Europe and the United States as an absolute criterion. During the discussion, we should also work towards promoting CBAM and other rules to recognize green power trading as a PPA, and then propose solutions that are in line with China's reality without deviating from the core requirements of international rules. **
The first step in our work is to analyze the rules and domestic practices, and strive for understanding and recognition of the rules; expanding the international application of the green certificate mechanism or the results of green electricity trading is a long-term task. 建议尽快与规则制定方开展沟通和交流，并在交流中，基于中国国情，充分介绍中国绿证机制和绿电交易设计的合理性与合规性，推动相关机制设计和技术标准与国际规则对接。
Editor Jiang Li
Audit Feng Jie
A translation expert is required to translate the following Chinese text into English. The translation must be grammatically correct and fluent. Please return the result directly. Notes
[1]REGULATION (EU) 2023/956，‘power purchase agreement’ means a contract under which a person agrees to purchase electricity directly from an electricity producer.
[2]https://eur-lex.europa.eu/eli/reg_impl/2023/1773/oj
[4]RE100，RE100 TECHNICAL CRITERIA（12 December 2022）
