Current Status of the Energy Transition

According to data from the National Bureau of Statistics, China’s total energy consumption in 2023 amounted to 5.72 billion tonnes of standard coal. The current energy consumption structure in China remains dominated by traditional energy sources, with renewable energy playing a supplementary role. However, it is undeniable that the share of renewable energy in the overall energy mix is steadily increasing. Specifically, coal consumption continues to be the largest component of China’s energy structure, accounting for 55.3% in 2023, a decrease of 12.1 percentage points compared to a decade ago. The share of oil consumption stands at 18.3%, down by 1.2 percentage points over the same period. In contrast to the gradual decline of these traditional energy sources, the share of renewable energy in total energy consumption has risen from less than 10% a decade ago to 15.6% by 2023.

Applicable Targets and Objectives

At the Climate Ambition Summit 2020, President Xi Jinping announced that by 2030, China will reduce its carbon dioxide emissions per unit of GDP by over 65% from 2005 levels, increase the share of non-fossil energy in primary energy consumption to around 25%, and achieve over 1.2 billion kilowatts of installed capacity for wind and solar power. As of the end of July 2024, the combined installed capacity of photovoltaic and wind power reached 1.206 billion kilowatts, achieving the capacity target six years ahead of schedule.

On 29 January 2022, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) released the 14th Five-Year Plan for Renewable Energy Development, setting targets for 2025. Non-fossil energy will account for about 20% of primary energy consumption, non-fossil energy generation will reach around 39%, and electrification levels will continue to rise, with electricity accounting for around 30% of end-use energy consumption. The plan also envisions that by 2035, China will achieve decisive progress in high-quality energy development, with a modern energy system largely established. By then, energy security will be significantly enhanced, green production and consumption patterns will be widespread, the share of non-fossil energy consumption will substantially increase from the 25% target in 2030, and renewable energy will become the primary electricity source.

China has made significant advances in renewable energy technologies, particularly in solar PV, wind and hydrogen energy, demonstrating strong innovation and market application potential.

Solar PV

In 2023, China continued to make breakthroughs in key photovoltaic technologies. For example:

• The “Flexible Monocrystalline Silicon Solar Cell Technology” significantly enhanced the flexibility of silicon wafers without substantially affecting the photoelectric conversion efficiency of the solar cells. This technology not only provides crucial support for the industrialisation of flexible silicon-based photovoltaic but also holds versatile application value in fields such as low-orbit satellites, high-altitude aircraft, and green buildings.
• The efficiency of silicon-perovskite tandem cells developed by Chinese enterprises reached 33.9%, setting a new world record for tandem solar cell efficiency.

Wind Energy

In 2023, China’s onshore wind turbines surpassed a capacity of 10 MW per unit, while offshore wind turbines reached 18 MW, placing China at the forefront globally. Meanwhile, significant breakthroughs were also made in key technologies, such as the development of floating wind turbines, providing technical support for future deep-sea wind power projects. On 28 May 2024, the State Administration for Market Regulation issued the Design Requirements for Floating Offshore Wind Turbines, filling a gap in the industry’s design standards for floating offshore wind turbines. This standard will come into effect on 1 December 2024.

Hydrogen Energy

Hydrogen energy is a key component of the future energy transition, with green hydrogen produced through water electrolysis being the only method capable of achieving clean decarbonisation. It is regarded as the primary technological route for future hydrogen production. In 2024, China made significant breakthroughs in green hydrogen. For example:

• The in-situ direct seawater electrolysis hydrogen production technology was successfully applied for the first time in the field of industrial wastewater hydrogen production, providing a reference for expanding seawater hydrogen production to other areas.
• A new water electrolysis catalyst was developed, with stability exceeding 19,100 hours, providing reliable technical support for hydrogen energy applications.

Record-High Installed Capacity

Over the past year, China’s renewable energy market has experienced rapid expansion. By the end of March 2024, the nation’s installed renewable energy capacity reached 1.585 billion kilowatts, representing a year-on-year growth of 26% and accounting for 52.9% of the total installed capacity nationwide. Among them, the combined installed capacity of wind and solar power surpassed 1.1 billion kilowatts, further solidifying China’s leading position in the global renewable energy market.

Shift in Power Purchase Mechanism

As the market scale expanded rapidly, related mechanisms are also gradually maturing. On 1 April 2024, the Measures for Regulating the Guaranteed Full Purchase of Renewable Electricity officially took effect, marking a shift from the previous “full purchase” model to a dual-track system of “guaranteed purchase plus market-traded”. Previously, grid companies were required to exclusively purchase all renewable energy generated. The new approach divides electricity into electricity for guaranteed purchase and market-traded electricity. Guaranteed power is covered by power market participants, while market-based power is priced through market mechanisms and shared by power sellers and users. This new regulation aligns with industry needs, signalling a step forward in China’s renewable energy marketisation, laying a solid foundation for further energy transition.

Existing Laws and Regulations Governing the Energy Market

China’s energy legal system features a “four verticals and seven horizontals” structure. Vertically, it includes laws, administrative regulations, departmental rules, and local regulations. For instance, Coal Industry Law of the People’s Republic of China provides legal norms for the coal industry, while the Regulation of the People’s Republic of China on Sino-foreign Cooperation in the Exploitation of Continental Petroleum Resources outlines administrative requirements. In addition, departmental rules and normative documents further detail energy administration.

Horizontally, the legal framework covers electricity, coal, oil and gas, nuclear energy, new and renewable energy, energy conservation, and regulation. The Renewable Energy Law of the People’s Republic of China, effective since 1 April 2010, provides a dedicated framework for renewable energy development.

Upcoming Changes in Laws and Regulations Relevant for Renewable Energy

Although China has enacted various energy-specific laws, it lacked a comprehensive “basic law” until 5 January 2024, when the State Council approved the Energy Law of the People’s Republic of China (Draft) and submitted it for legislative review. This draft aims to unify existing energy laws and comprehensively regulate energy development, market systems, technological innovation, reserves, and emergency management. It marks significant progress in China’s energy legislation and is expected to impact renewable energy projects, market transactions, and corporate compliance.

Additionally, the NEA has prioritised the amendment of the Renewable Energy Law in 2024, aiming to integrate the rules for guaranteeing the consumption of electricity generated by renewable energy with Green Electricity Certificates (GECs) and carbon trading mechanisms, providing long-term support for sustainable renewable energy development.

The NEA is the most crucial energy management agency at the national level, with the authority to take measures such as issuing rectification orders, imposing administrative penalties, supervising implementation, conducting regulatory interviews, and refining policies based on the nature and circumstances of issues. The NEA has six regional regulatory bureaus and twelve provincial regulatory offices as its branches. Additionally, energy management departments are also established at the provincial, municipal, and county levels.

Other key agencies include:

• NDRC: responsible for the approval of major energy projects and the price management of energy products;
• authorities charged with the duty of supervision and administration of work safety: oversee work safety production in the energy sector;
• the environmental protection administrative departments: manage environmental protection related to energy sector; and
• State-owned Assets Supervision and Administration Commission: responsible for personnel appointments, removals, and performance evaluations of state-owned energy enterprises.

The above agencies, through their respective roles and regulatory measures, collectively ensure the effective operation and safety of the renewable energy market.

In China, the development, construction, and operation of renewable energy projects are strictly regulated, with particular attention to the following aspects:

• Approval of project: All renewable energy projects must obtain approval from relevant authorities before commencement, ensuring alignment with national energy development plans and environmental protection requirements.
• Compliance of land use: Project land must adhere to national and local land use policies, with stricter approvals for sensitive areas such as cultivated land, forestland and water source protection zones.
• Environmental impact assessment: The environmental impact assessment is generally required, covering effects on the local ecosystem and pollutant emissions. Wind and solar PV projects respectively focus on noise and light reflection, while biomass projects address odours and waste management.
• Grid connection: Projects must comply with grid connection and power dispatch regulations to ensure stable electricity supply. Wind and solar projects must meet the power grid enterprises’ connection standards.

Currently, restrictions on ownership and transfer of (renewable) energy assets in China primarily focus on wind and solar PV projects under construction.

According to the Notice of the National Energy Administration on Regulating the Investment and Development Order of Photovoltaic Power Stations and other relevant documents, renewable energy projects (such as solar PV projects) cannot be transferred without approval from the archive-filing organ until they have been included in the annual construction scale and have been put into production. It is noteworthy that, although relevant national regulations have been gradually repealed, local regulations have not been updated accordingly. New local regulations still explicitly prohibit such transfers. For example, the Notice on Competitive Allocation of Wind Power and Photovoltaic Power Development and Construction for 2023 issued by the Energy Administration of Shanxi Province on 17 October 2023, specifies that “projects with annual development and construction indicators must have the same applicant and operating entity, and cannot be transferred without approval during the construction period and within five years after full-capacity grid connection.” Consequently, local regulations prohibiting the “transfer of construction permits” remain in effect, and regulatory enforcement on this issue has not been relaxed. Therefore, transactions involving the ownership of renewable energy assets, such as wind and solar PV stations under construction, face significant restrictions.

Furthermore, regardless of the type of renewable energy assets, state-owned enterprises must adhere to relevant state-owned asset supervision regulations to ensure compliance and transparency in asset transfers.

The Chinese government generally supports foreign investment in the (renewable) energy markets.

The Opinions of the State Council on Further Effectively Using Foreign Investment explicitly states that it will continue to reduce the negative list for foreign investment access nationwide and in free trade zones, and comprehensively remove restrictions not included in the negative list to ensure the effective implementation of opening measures and continuously improve the level of openness. The Energy in China’s New Era issued by the State Council Office, also notes that China “has lifted the restrictions for foreign investment to enter the sectors of coal, oil, gas, electric power (excluding nuclear power), and new energy”. The Special Administrative Measures (Negative List) for the Access of Foreign Investment (2021) does not include the renewable energy sector, implying no special restrictions on foreign investment in this field. (The Special Administrative Measures (Negative List) for the Access of Foreign Investment (2024) has been reviewed but has not yet been published.)

The Catalogue of Industries for Encouraging Foreign Investment (2022) lists several renewable energy-related fields encouraging foreign investment, such as Manufacturing of equipment for hydrogen energy preparation, storage, transportation, and inspection systems (258), Design, research, and development of offshore wind power equipment and offshore new energy equipment (including tidal energy, wave energy, temperature difference energy, etc) (303), and Manufacturing of complete sets of equipment or key equipment for new energy power generation: equipment for photovoltaic power generation, solar thermal power generation, geothermal power generation, tidal power generation, wave power generation, garbage power generation, and biogas generation and power generation; and manufacturing of bulk heterojunction matrix materials (310), as well as Construction and operation of new energy power stations (including solar energy, wind energy, geothermal energy, tidal energy, tidal current energy, wave energy, biomass energy, etc) (402).

Meanwhile, foreign investors in China may be subject to security reviews and antitrust scrutiny.

Ongoing Optimisation of Electricity Generation

As of 30 June 2024, China’s electricity generation structure continues to evolve. The total installed capacity has reached 3.07 billion kilowatts, with renewable energy accounting for 53.04% of this capacity. Specifically, solar power contributes the most, with a share of 23.23%, followed by wind power at 15.2%, and conventional hydropower at 13.9%. This structure highlights the significant role of renewable energy in China’s electricity market and its ongoing growth trend.

State-Owned Enterprises Lead the Electricity Generation Market

China’s electricity generation market is predominantly led by eleven major state-owned enterprises, including China Energy Investment Group Co., Ltd, China Huaneng Group Co., Ltd., China Huadian Corporation LTD, China Datang Corporation Ltd., and State Power Investment Corporation Limited. These enterprises account for over 60% of the total power generation. They are also actively expanding their renewable energy portfolios to accelerate China’s energy transition. According to public information, these eleven power generation companies plan to add approximately 530 GW of new renewable energy capacity during the 14th Five-Year Plan period to advance energy transition.

Primarily Electricity Generation Facilities with Diverse Supporting Assets

The core assets in the production/generation sector for electricity from renewable sources are the electricity generation facilities themselves, such as wind turbines in wind farms and solar panels and inverters in photovoltaic power stations. Additionally, land use rights, intellectual property, power grid access, and transmission infrastructure are also critical assets that support the operation and value of renewable energy projects.

Comprehensive and Well-Established Legal Framework

The legal framework governing the production/generation sector for electricity from renewable sources includes key laws such as the Renewable Energy Law of the People’s Republic of China and the Electric Power Law of the People’s Republic of China. Supplementing these are regulations like the Measures for Regulating the Guaranteed Full Purchase of Renewable Electricity, and the Notice on Further Improving the Filing and Registration of Renewable Energy Power Generation Projects issued by the NEA. Together, these laws and regulations form a robust legal foundation that ensures the regulated and sustainable development of the renewable energy industry.

Emerging Industry in Early Stages

The production of biogas or green gas in China is still in its early stages, encompassing multiple sectors such as agriculture, environment, energy, and chemical industries. With a current output of approximately 250 million cubic metres, representing about 4% of global production, the industry is still in a growth phase.

From Feedstock Suppliers to Production Enterprises

Key parties in this industry include feedstock suppliers, such as agricultural farmers, urban catering businesses, and agricultural product processing enterprises. Additionally, production enterprises play a crucial role, handling the preprocessing of organic waste, anaerobic digestion, biogas purification, and upgrading processes.

Production Facilities are Critical

Key assets in this sector include feedstock processing facilities, anaerobic digestion equipment, and gas purification and upgrading systems, all of which are crucial for effective production.

Governed by Laws and Guiding Opinions

The sector is primarily regulated by the Renewable Energy Law of the People’s Republic of China. Furthermore, documents like the Guiding Opinions of the National Development and Reform Commission, the National Energy Administration, and the Ministry of Finance on Promoting the Industrialization of Bio-Natural Gas and the 14th Five-Year Plan for Renewable Energy Development also provide direction on the development goals and implementation pathways for biogas or green gas.

Distinct Regional Characteristics

The market of the production sector for heat from renewable sources in China typically exhibits regional characteristics, influenced by the geographical distribution of resources. For instance, the market structure of the geothermal energy heating sector is primarily divided into geothermal power plants and geothermal heating. Geothermal power plants are mainly located in Yunnan, Xizang, and Hainan, while geothermal heating is concentrated in the northeastern, northern, and northwestern regions of China.

Dominated by Large Energy Companies and Specialised Developers

The exploration and development of geothermal energy are primarily handled by large energy companies or enterprises specialising in geothermal development. For example, China Petroleum & Chemical Corporation is the largest enterprise in the country involved in the development and utilisation of medium- to deep-layer geothermal energy.

Geothermal Wells, Heat Exchange Stations, Heating Networks and Control Systems are Crucial

The key assets in geothermal heating systems include geothermal wells, heat exchange stations, heating networks, and control systems. Regular maintenance and upgrades of these facilities are essential to ensure the efficient operation of the heating system.

Governed by Multiple Laws and Regulations

Taking geothermal resources as an example, due to their multiple attributes as renewable energy, mineral resources, and water resources, the approval of geothermal development projects must comply with a variety of laws and regulations. In addition to the Renewable Energy Law of the People’s Republic of China, such projects must also adhere to the Mineral Resources Law of the People’s Republic of China, the Water Law of the People’s Republic of China, and the Opinions on Promoting the Development and Utilization of Geothermal Energy, among other relevant legal provisions.

Leading Hydrogen Production Capacity, Highly Concentrated Biofuels Industry

China is the world’s largest hydrogen producer, with a hydrogen production capacity of approximately 41 million tonnes per year as of 2022, and an actual production volume of 37.81 million tonnes. Under the 2030 carbon peak goal, China’s hydrogen production is expected to exceed 50 million tonnes per year. Over one-third of Chinese central state-owned enterprises are actively involved in the hydrogen energy industry chain.

In the biofuels sector, the market is highly concentrated. In 2023, the top three companies in the bioethanol industry accounted for over 60% of the market share, while the top ten companies controlled more than 90%.

Comprehensive Hydrogen Chain and Concentrated Biofuels Industry Lead the Market

The hydrogen energy industry encompasses hydrogen production, storage, distribution, and utilisation. By the end of 2023, 1,362 hydrogen refuelling stations had been built worldwide, with 428 of them located in China, making it the global leader.

The biofuel industry primarily involves the production of bioethanol, biodiesel, and biogas. The supply chain includes raw material collection, pretreatment, and the production and utilisation of biofuels. Key enterprises include COFCO Biotechnology Co., Ltd., Zhejiang Jiaao Enprotech Stock Co., Ltd., and Shandong Longlive Bio-technology Co., Ltd.

Critical Production Facilities

In both industries, production facilities constitute the most critical assets. Bioethanol producers, for instance, require large-scale fermentation and purification facilities, while biodiesel producers need oil processing and fuel blending equipment.

Governed by Multiple Laws and Standards

In addition to the Renewable Energy Law of the People’s Republic of China, the production and use of hydrogen and biofuels are subject to various regulations and standards. For example, biodiesel production must comply with the Development Policies for the Bio-diesel Industry and other relevant regulations.

For small-scale renewable energy production, the following regulations apply:

• Recordation of projects: According to the Guidelines for Household Solar Construction and Operation (2022), household distributed solar projects must be filed. Typically, the power grid enterprise submits the application to the local energy authority. In a co-operative model, although the project company provides equipment and services, the actual filing entity must be the individual user to comply with household solar management requirements.
• Environmental Impact Assessment (EIA): According to Item 90 of the Classified Administration Catalogue of Environmental Impact Assessments for Construction Projects (2021), residential solar power generally does not require an EIA. However, if the project connects to the grid, it may be necessary to confirm whether an EIA filing is required.
• Permit for construction projects: Under Articles 40 and 41 of the Urban and Rural Planning Law of the People’s Republic of China, small-scale renewable energy projects typically require planning permits, but some regions may exempt small-scale solar installations. Specific requirements depend on local policies.
• Construction license: According to Article 2 of the Measures for the Administration of Construction Permits for Construction Projects, small-scale solar facilities may be exempt from a construction permit, subject to local standards.
• Land and property: According to Article 2 of the Notice on Regulating Rural Homestead Management, buildings on rural land must have a legal property certificate and land use rights certificate. Solar projects on rural homesteads must comply with these regulations. In some regions, land use certificates issued by township governments may be accepted in place of official documentation. Additionally, the land use rights must be verified as legal, without any mortgages, seizures, or leases.

Expansion of Electricity Transportation, Lithium-Ion Batteries Dominate Energy Storage Market

The sector for transportation and storage of electricity from renewable sources in China is rapidly developing, with the length of 220 kV and above transmission lines reaching 920,000 kilometres by the end of 2023, a 4.6% increase year-on-year. New storage technologies are being adopted quickly, with lithium-ion batteries continuing to dominate the market at approximately 97.4%. Vanadium flow batteries, compressed air storage, and lead-acid (carbon) batteries account for 0.4%, 0.5%, and 0.5%, respectively, while other storage technologies make up about 1.2%.

State Grid Corporation of China (SG) and China Southern Power Grid Co., Ltd (CSG) Lead Transmission, While Several Internationally Leading Storage Companies Lead the Market

Electricity transportation and distribution in China are primarily controlled by SG and CSG, with large-scale cross-regional projects such as the “West-East Electricity Transmission Project”, facilitating extensive electricity transportation. Additionally, China has several internationally leading storage companies, including Contemporary Amperex Technology Co. Limited, XJ Electric Co., Ltd., and BYD Company Limited.

Storage and Transportation Infrastructure are Crucial

The key assets in this sector include storage and transportation infrastructure.

Governed by Multiple Laws and Regulations

China’s power transportation and storage are governed by several laws and regulations, including the Renewable Energy Law of the People’s Republic of China, the Electric Power Law of the People’s Republic of China, the Regulations on Supply and Use of Electric Power, and the Guiding Opinions of the National Development and Reform Commission and the National Energy Administration on Accelerating the Development of New Energy Storage. These regulations provide legal support for the efficient utilisation of renewable energy and the advancement of storage technologies.

Grid Modernisation and Upgrades

In March 2021, SG released the Carbon Peaking and Carbon Neutrality Action Plan, which calls for accelerating grid development and advancing the grid towards an energy internet. The goal is to build an internationally leading energy internet by 2025. This action plan aims to address grid congestion caused by the intermittent nature of renewable energy sources.

Establishment of a Managed Electricity Usage System

The Electricity Load Management Measures (2023) introduces a managed electricity usage system. This system refers to the lawful and regulated control of certain electricity loads through administrative measures and technical methods when, despite taking various steps such as increasing power generation, market organisation, demand response, and emergency dispatch, the balance between electricity supply and demand cannot be met in foreseeable situations of insufficient power supply.

Incentives for Flexibility and Demand-side Management

The Electricity Load Management Measures (2023) also proposes establishing a demand response pricing mechanism connected with the electricity market. It supports economic incentives through peak pricing and widening the price range in the spot market. Demand response participants are encouraged to engage in energy markets, ancillary services markets, and capacity markets to earn economic benefits.

Off-Grid Solutions

China has established off-grid photovoltaic/wind-solar hybrid power systems, widely used in remote, unpowered, electricity-deficient, and unstable power areas. Currently, this sector constitutes about 5% of the overall market.

Inadequate Infrastructure, Sales Reliant on Compressed or Shipping Transport

Due to the industry’s development stage, infrastructure for raw material storage, transportation, and natural gas pipelines remains underdeveloped. When there are no gas pipelines or consumption terminals nearby, the sale of biogas and green gases relies on compressed storage in tanks for truck transport or shipping.

Transport and Storage Companies Lead the Market

The key parties in this industry are specialised transport and storage companies.

Storage Facilities are Crucial

Storage facilities are critical assets and must meet all necessary conditions to ensure the safe and stable storage of bio-LNG.

Governed by the Renewable Energy Law of the People’s Republic of China and Related Industry Policies

Key regulations include the Renewable Energy Law of the People’s Republic of China and related industry policies, such as the Notice on Preparing the Long-Term and Medium-Term Plan for the Development of Biogas and the Guiding Opinions of the National Development and Reform Commission and the National Energy Administration, and the Ministry of Finance on Promoting the Industrialization of Bio-Natural Gas.

Rules for Injecting Gas from Renewable Sources into the Public Gas Grid

Biogas injected into public gas networks must comply with the Regulations on the Administration of Urban Gas (2016 Revision). Additionally, according to the Biogas Product Quality Standards (NB/T 10136-2019), biogas must meet the Class II natural gas quality standards specified in Natural Gas (GB 17820-2018) before being injected into urban gas pipelines. At the injection point, biogas must be free of liquid water and hydrocarbons under specified pressure and temperature conditions to ensure compatibility and safety with other gases in the network.

Complete Industry Chain, Yet Renewable Energy Share Needs Growth

The sector for transportation and storage of heat from renewable sources in China has developed a relatively complete supply chain, encompassing material research, equipment manufacturing, and system integration. However, this sector still heavily relies on fossil fuels, with only a small proportion derived from renewable sources. As China advances towards its “peak carbon emissions by 2030, carbon neutrality by 2060” goals, the use of fossil fuels is decreasing significantly, and the prospects for renewable energy-related thermal storage are promising.

Thermal Storage Material and Component Manufacturers, Thermal Storage Device (System Integration) Manufacturers Lead the Market

Key parties in this sector include thermal storage material and component manufacturers, thermal storage device (system integration) manufacturers, such as thermal magnesium bricks, phase change materials, molten salts, and electric heating systems. System integrators for thermal storage devices, including solid, phase change, and water storage systems, also play a crucial role.

Thermal Storage Devices are Crucial

The key assets in this field are thermal storage devices, including but not limited to, thermal water tanks, high-pressure electrode boilers, solid-state electric storage boilers, phase change storage devices, and molten salt storage systems.

Governed by Multi-Tiered Regulation

In addition to the Renewable Energy Law of the People’s Republic of China, several documents from the NDRC and the NEA, such as the Guiding Opinions on Promoting Energy Storage Technology and Industrial Development and the 14th Five-Year Plan for New Energy Storage Development, regulate the sector. Industry standards include, but are not limited to, Technical Specifications for Seasonal Thermal Energy Storage Solar Thermal Utilization Engineering (NB/T 34044-2017) and Medium and Low-Temperature Solar Thermal Storage Devices (GB/T 40517-2021).

Regulations Related to the Operation of Heat Grids

The operation of heat grids must comply with Technical Conditions for Hot Water Heating Station Equipment (GB/T 38536-2020).

Five Key Stages in This Sector

The sector for transportation and storage of hydrogen and other biofuels encompasses five key stages: manufacturing, storage, transportation, refuelling, and application, of which storage technology is crucial.

Storage and Transportation Companies Lead the Market

Specialised storage and transportation companies are core players in this industry. Storage companies focus on building and operating facilities for hydrogen and other biofuels, including high-pressure cylinders, low-temperature liquid storage tanks, and solid-state hydrogen storage systems. Transportation companies handle the movement of hydrogen and biofuels, involving compressed gas transport, liquid storage and transport, pipeline transport, and shipping.

Storage and Transportation Equipment are Crucial

The primary assets in this field are storage and transportation equipment. Storage facilities include high-pressure cylinders, low-temperature liquid tanks, and solid-state hydrogen storage systems. Transportation equipment comprises vehicles, pipeline systems, refuelling stations, and related infrastructure.

Governed by Renewable Energy Law of the People’s Republic of China and Industry Policies

This sector is governed by the Renewable Energy Law of the People’s Republic of China and relevant industry policies, such as the Guiding Opinions on Promoting Energy Storage Technology and Industrial Development and the medium- and long-term plan for the development of hydrogen energy (2021-2035).

A Nationwide Unified Electricity Market System is About to Be Established

China’s renewable energy electricity trade and supply market is steadily maturing. According to the Guiding Opinions on Accelerating the Construction of A National Unified Electricity Market issued by the NDRC and the NEA, the nationwide unified electricity market system is expected to be initially established by early next year. This system will enable the co-ordinated operation of the national market with provincial and regional markets, achieving an integrated design and joint operation of long-term, spot, and ancillary services markets. The scale of cross-province and cross-regional market-based resource allocation and green electricity trading will significantly expand, providing a more comprehensive market trading and pricing mechanism for the development of new energy and energy storage.

Dominance of SG and CSG

SG and CSG are the key parties, playing a central role in electricity trade and supply. Additionally, numerous power generation companies and power sales companies actively participate in the market, providing electricity services to end users.

Transmission and Distribution Infrastructure, Monitoring and Control Systems are Crucial

The core assets in this sector include transmission and distribution infrastructure, such as high-voltage transmission lines, substations, and distribution networks. Moreover, monitoring and control systems for real-time monitoring of electricity generation, transmission, and consumption are also critical.

National Electricity Purchase and Sale Contract Model Text

In renewable electricity supply, standardised power purchase agreements (PPAs) are commonly used. These agreements typically refer to the National Electricity Purchase and Sale Contract Model Text (GF-2021-0511) issued by the NEA and the State Administration for Market Regulation. These standard contracts help ensure transparency and legality in transactions.

Laws and Relevant Regulations

The primary legal and regulatory frameworks governing this sector include the Renewable Energy Law of the People’s Republic of China and the Electricity Power Law of the People’s Republic of China, along with relevant departmental regulations such as the Regulations on Supply and Use of Electric Power.

Supply and Demand Mismatch

In most provinces of China, there is a significant gap between supply and demand of gas from renewable sources. Biogas and green gas have substantial potential to supplement natural gas supply and enhance energy security. Gas production is mainly concentrated in western and northern provinces such as Sichuan, Xinjiang, Shaanxi, and Inner Mongolia, whereas the major consuming provinces are located in North China, East China, and South China, including Guangdong, Jiangsu, and Shandong. This geographic mismatch between production and consumption necessitates transportation through pipelines or other means.

Gas Companies Lead the Market

Gas companies are undoubtedly the central players in this sector. Given the need to ensure the utilisation of biogas and green gas, a diversified consumption model is expected to emerge, integrating biomethane into gas grids and the transportation, industrial, and construction sectors. This development will likely lead to the establishment of stable, long-term contracts between end users and suppliers.

Pipeline Systems and Infrastructure are Crucial

The pipeline systems and infrastructure required to transport biogas and green gas to end users are the key assets in this sector.

Governed by Renewable Energy Law of the People’s Republic of China and Relevant Industry Policies

Regulatory frameworks governing this sector include the Renewable Energy Law of the People’s Republic of China and relevant industry policies such as the Notice on Preparing the Long-Term and Medium-Term Plan for the Development of Biogas and the Guiding Opinions of the National Development and Reform Commission and the National Energy Administration, and the Ministry of Finance on Promoting the Industrialization of Biogas.

The market for the trade and supply of heat from renewable sources in China primarily encompasses geothermal heating, solar heating, and biomass heating. These sectors utilise various renewable resources to provide clean and sustainable thermal energy, contributing to energy conservation, emission reduction, and environmental protection.

• Geothermal heating is predominantly concentrated in regions rich in geothermal resources, such as Yunnan, Xizang, Northeast, and North China. Geothermal heating systems typically include geothermal wells, heat exchange stations, and heating networks.
• Solar heating comprises components like solar collectors, thermal storage systems, and heating networks. Solar heating is widely used in building heating and hot water supply. Solar heating systems are generally categorised into integrated systems and distributed systems.
• Biomass heating involves using biomass fuels (such as straw and wood chips) for heating, which is suitable for agricultural and industrial applications. Biomass boilers and heating systems are the critical assets in this sector.

High Demand for Hydrogen and Other Biofuels

China has a substantial demand for renewable energy sources like hydrogen and other biofuels. For example, China is the world’s largest consumer of hydrogen, accounting for 29% of global hydrogen demand annually.

Enterprises Across Traditional Industries, Refining, Transportation, Power, and Construction Lead the Market

Hydrogen applications are mainly focused on traditional industries and refining. However, there is also a growing demand in emerging sectors such as transportation, power generation, and construction. Therefore, companies within these industries play a crucial role in energy consumption.

Refuelling and Distribution Facilities are Crucial

The refuelling and distribution facilities for hydrogen and biofuels are critical assets in this sector.

Governed by the Renewable Energy Law of the People’s Republic of China and Relevant Industry Policies

The primary legal framework governing this sector includes the Renewable Energy Law of the People’s Republic of China and related industry policies, such as a medium- and long-term plan for the development of hydrogen energy (2021-2035).

Renewable Energy Certificates

GECs in China serve as verification and proof of the renewable attributes of electricity generated from renewable energy sources. The market structure for GECs includes China’s GEC Trading Platform, the Beijing Power Exchange Centre, and the Guangzhou Power Exchange Centre. Transactions are primarily conducted through bilateral negotiations and listing trades, with potential expansion into centralised bidding in the future. According to the latest regulations, the issuance of green certificates has been expanded to cover all renewable energy electricity generation projects with records created, ensuring comprehensive coverage. Purchasing GECs allows companies to reduce their indirect greenhouse gas emissions, claim the use of green energy, and enhance their green image.

PPAs

In China, long-term PPAs are not yet widely adopted, with most agreements being one-year contracts. In some regions, monthly and quarterly contracts are available, but multi-year contracts remain rare. This short-term approach leads to a tendency for power companies and users to focus on short- to medium-term price expectations.

Mature Onshore Renewable Energy Market and Seven Major Energy Bases

The development of onshore renewable energy projects in China is now relatively mature, with large-scale projects widely distributed across various regions. Notable renewable energy bases include those in Xinjiang and the upper reaches of the Yellow River, among others, forming a preliminary network of seven major new energy bases.

“Five Major and Six Minor” Energy Groups Lead the Market

Key parties in onshore renewable energy projects primarily include the “Five Major and Six Minor” energy groups, new energy industry funds, financial institutions such as banks, project providers, construction units, and equipment manufacturers.

Permits are Crucial for Projects

Projects must obtain various permits, including environmental impact assessments, land use approvals, and grid connection agreements. These permits are essential for ensuring that the project complies with national and local regulations and supports its lawful development.

EPC and O&M

EPC (engineering, procurement, and construction) and O&M (operation and maintenance) contracts are commonly used in these projects. Participants must adhere to industry standards to ensure the smooth construction and operation of the project.

Government Involvement and Community Participation

The government plays a crucial role in project planning, approval, and oversight, ensuring that projects align with national energy goals. When land use impacts local communities, developers are required to engage with the community, address concerns, and ensure that the project contributes to local employment and infrastructure improvements, thereby fostering community development and harmonious project advancement.

Growing Offshore Renewable Energy Market

Offshore renewable energy projects in China, particularly offshore wind and photovoltaic projects, have recently received strong policy support. The market is gradually maturing, with the government giving focused support to pilot projects for offshore PV, while offshore wind projects are expanding rapidly, attracting significant investment from various companies.

Various Parties Involved

The main participants in these projects include government authorities, energy groups, financial institutions, engineering companies, and equipment suppliers.

Complex Approval Process for Offshore Projects

Offshore wind projects require government approval, including procedures such as marine area use rights approval, environmental impact assessment, construction planning permits, and safety production licenses. The approval process is relatively complex, with marine area use rights needing to be applied for from the natural resources department, and applications for the use of uninhabited islands being handled in accordance with the Island Protection Law of the People’s Republic of China. During construction, environmental protection requirements must be adhered to, and strict control of construction quality is required.

EPC, BOP, WTSA and O&M

Common contracts used in offshore wind projects include EPC (engineering, procurement, and construction), BoP (balance of plant), WTSA (wind turbine supply and installation agreement), and O&M (operation and maintenance). These contracts must comply with industry standards to ensure the smooth construction and operation of the project.

Government Involvement

Project development involves extensive government approval processes and requires completion of bidding and contract signing procedures. Additionally, national policies support offshore wind and PV projects by providing financial subsidies and tax incentives. Local governments also implement specific subsidy policies based on local conditions.

The financing of renewable energy assets involves several key legal factors and carries specific risks and requirements, as outlined below.

Financing Methods

As mentioned in 2.4 Ownership and Transfer of Control, although national regulations have phased out restrictions on transferring projects to other investors before they are operational, local regulations have not yet been updated to reflect these changes. As a result, transactions involving the ownership of renewable energy assets like wind and photovoltaic power stations still face significant limitations. Such projects are often transferred through the sale of shares in the project company.

Project Qualifications

Renewable energy project financing is typically undertaken by the project company, which must have the appropriate project filing or approval qualifications. The qualifications of the project company are critical as it is responsible for project filing and subsidy applications. Issues with qualification documents can obstruct financing, so financial institutions need to conduct thorough due diligence on the project company’s qualifications.

Land Use

Land issues are among the most complex aspects of financing for renewable energy projects. These may involve state-owned land, collective land, or marine areas. For state-owned land, the legality of land allocation or transfer procedures must be verified. Collective land requires necessary filing or approval procedures. Additionally, it is crucial to ensure that the land does not involve sensitive areas such as basic cultivated land, forestland, military zones, ecological red lines, or water source protection areas.

In China, the subsidies and incentive schemes for renewable energy is well established, covering both national and local levels. The main subsidy and incentive programmes are detailed below.

National Level

• Electricity price subsidies: According to the Notice on the Budget Allocation for Renewable Energy Electricity Price Supplementary Funds for 2024 by the Ministry of Finance, RMB5.40457 billion will be allocated for electricity price subsidies in 2024. These funds will be distributed to power grid enterprises or independent renewable energy power system projects to support their operation.
• GECs: GECs certify the amount of electricity generated from renewable sources. Power generation enterprises can sell these certificates for additional economic incentives, particularly benefiting those companies required to fulfil renewable energy quota obligations.
• Tax incentives: Since 1 July 2015, the state has implemented a 50% VAT rebate policy on the sale of self-produced wind power electricity products. This reduces project operating costs and provides tax support for renewable energy projects.

Local Level

Many provinces and municipalities have introduced additional incentive policies tailored to their circumstances. For example, Beijing, Shanghai, and Jiangsu provide local subsidies for distributed photovoltaic projects, establish special funds, or offer loan discounts to further support the development of renewable energy.

China is committed to advancing the recycling of decommissioned renewable energy equipment to achieve green development across the entire lifecycle of the renewable energy industry. On 21 July 2023, the NDRC and other departments released the Guiding Opinions on Promoting the Recycling of Decommissioned Wind and Photovoltaic Equipment. This guidance aims to establish a recycling system for wind and solar photovoltaic equipment that covers green design, standardised recycling, high-value utilisation, and harmless disposal. The system is intended to address the final link in the green and low-carbon circular development of the wind and solar industries, supporting the goals of carbon peak and carbon neutrality. Specific measures include establishing a clear responsibility mechanism for decommissioned equipment handling, improving the recycling system, enhancing resource regeneration capabilities, and regulating the harmless disposal of solid waste.

During project decommissioning, according to the principle of “who damages, who reclaims”, project developers are also responsible for land reclamation and ecological restoration. Relevant laws and regulations include the Regulation on the Implementation of the Land Administration Law of the People’s Republic of China, and the Regulation on Land Reclamation. Local policies may also require the deposit of ecological restoration guarantees, such as the Implementation Rules for the Reform Pilot of Using Forest Land for Photovoltaic Power Generation Projects in Datong City.

China’s renewable energy policies are set to undergo significant advancements, reflecting the nation’s ambitious goals and strategic priorities in the renewable energy sector.

Carbon Peak and Carbon Neutrality

China has committed to reaching peak carbon emissions before 2030 and achieving carbon neutrality by 2060. These targets are central to the country’s long-term climate strategy, aiming to reduce carbon dioxide emissions and offset remaining emissions through carbon sinks and other measures.

Renewable Energy Development Targets

In January 2022, the NDRC and the NEA released the 14th Five-Year Plan for Renewable Energy Development, setting specific targets for 2025: the share of non-fossil energy in primary energy consumption will reach approximately 20%, and the share of non-fossil energy in electricity generation will reach about 39%. By 2035, the plan envisions decisive progress in high-quality energy development, with non-fossil energy consumption significantly exceeding 25% of the total, and renewable energy becoming the dominant power source.

Improving Market Mechanisms

Documents such as the Basic Rules for Medium- and Long-Term Electricity Trading – Special Chapter on Green Power Trading propose accelerating the establishment of a market system that supports green energy production and consumption. This includes integrating green electricity trading into medium- and long-term electricity transactions to meet the demand for green electricity.

Promoting Technological Innovation

The 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035 highlights the development of strategic emerging industries, particularly in new energy, electric vehicles, green environmental protection, hydrogen energy, and energy storage. The plan emphasises advancing technological innovation and breakthroughs in these fields.