Electronic Certificate Tracking Systems Offer Advantages for China’s Renewable Energy Quota
A key policy driver to support renewable energy development is a renewable energy quota. China is considering a new renewable energy quota system for its electricity sector that will support its aggressive clean energy goals. On November 15, 2018, the National Energy Administration issued a consultation version of the Notice of Implementation of the Renewable Energy and Electricity Quota System. The final formal quota has not been established, and implementation details are being developed.
To ensure accurate tracking and reporting of renewable energy generation, technical processes must be put into place to verify generation and compliance with the quota’s requirements on obligated parties—those who must meet the quota. Specifically, implementing a quota requires an accurate process to account for and verify renewable energy generation along with other data that must be tracked and measured. This can include documenting renewable energy production based on metered output, tracking generator characteristics (for example, location, fuel type, and online date), and recording renewable energy megawatt-hours that are applied toward quota compliance. Obligated parties and regulators need access to these data to verify compliance with renewable energy goal requirements.
There is significant international experience with electronic certificate tracking systems that support generation verification and quota compliance. Although many early quota systems included contract path auditing as a core component of quota verification, there are a number of advantages to using an electronic certificate tracking system and many mature technology options for implementing one.
China has not announced how it will track generation and verify compliance with its renewable energy quota. We compare the two methods below.
Advantages of Electronic Tracking Systems
Regulators typically have relied on two different accounting and verification methods for quota compliance: contract path auditing and electronic tracking systems. Although both methods have been used extensively, the last decade has seen a universal movement toward electronic tracking systems.
Contract path auditing is more difficult for a number of reasons: It is challenging to administer, requires many manual processes, and has many failure points throughout the process. It requires that the chain of custody for renewable energy generation be manually checked through contracts and other documents, the integrity of which in turn requires periodic independent audits. The manual nature of the procedures increases the potential for fraud and error.
This method tends to be very time-intensive, especially as the volume of transactions and therefore data increases.
If only a few trusted parties are providing and using the data, contract path auditing can be a viable option. However, it is challenging to design and implement effective manual processes for the quantities of data that are produced by a large number of generators and retailers, as well as to develop the information reporting and compliance procedures that meet regulator needs. Some of the first U.S. states with renewable energy quotas began with contract path auditing—monitoring compliance with databases and spreadsheets. They quickly moved to electronic tracking systems, however, and now all U.S. states with a quota require the use of electronic tracking systems.
Electronic certificate tracking systems are web-accessible databases that automate much of the data gathering, processing, and verification checks, and facilitate processes for both obligated parties and regulators. Because of these features, electronic systems are less vulnerable to fraud and error than contract path auditing. Electronic systems track renewable energy generation and use toward quota compliance, and they are commonly used to facilitate voluntary trading of renewable energy. These systems “serialize” electricity production into standard units for each MWh of metered production, such as renewable energy certificates (RECs) in North America or guarantees of origin (GOs) in the European Union.
Tracking systems provide a common platform for all quota stakeholders and participants, including generators, load serving entities (retailers and utilities), grid operators, and provincial and national regulators. A variety of options exist for developing an electronic tracking system, including using existing platforms designed and administered by established service providers, or developing custom software solutions (including blockchain-based systems). The initial development of electronic tracking systems requires upfront investment, but the short- and long-term advantages of ease of use and increased accuracy make their superiority over spreadsheet-based contract path systems immediately apparent.
Electronic tracking systems are in widespread use internationally, including in the EU, India, Mexico, and the U.S. Most countries with significant renewable energy quotas require or are planning to use electronic tracking systems, and many other countries have implemented them to support voluntary renewable energy transactions. In the U.S., where state regulators used contract path auditing before electronic tracking systems were developed, regulators found that using electronic tracking is easier, better protects market integrity, and reduces the time required for compliance checking.
Electronic Tracking System Services
Electronic tracking systems perform a number of crucial services, including recording generation, tracking changes in ownership of certificates, and providing proof of use and verification services for regulators and other users. Separate trading platforms that conduct wholesale and retail transactions can co-exist with tracking systems, and once trading terms are reached, electronic tracking systems are used to document the transfer of certificates between the seller and the buyer. It is technically possible to integrate contracting, trading, and payment functions with electronic tracking system platforms, but there are few examples of this integrated functionality.
Electronic tracking system functionality can be customized to meet particular needs. For example, a system can automatically retire (cancel) certificates for particular purposes. In China, this may be useful for facilities that benefit from the feed-in tariff. The system can be designed to limit transfers or the timing of when transfers can occur—design features that some government regulators have desired. Other examples include automatic reporting to government agencies and regulators, and public data reporting.
Well-designed electronic tracking systems are able to handle the different needs of the territories they cover. For example, the New England Power Pool Generation Information System (NEPOOL GIS) covers six states in the Northeast U.S. that each have different renewable energy quota requirements. This immense system follows more than 50,000 electricity generators, 2,000 account holders, 250 retail electricity providers (utilities and competitive suppliers), and one grid operator, and tracked more than 26 million MWhs in transactions in 2017 alone. NEPOOL GIS’ only feasible option is to use an electronic tracking system, and that system covers not just renewable energy but also all other forms of electricity generation in the region.
China’s renewable energy quota system will include a large number of market entities, which will generate a substantial amount of data. In addition, China’s quota system is designed for multiple provincial and national regulatory authorities to review compliance annually. To handle the complex markets, multiple regions, and vast amounts of information, the only viable long-term option is to use an electronic tracking system.
While China’s renewable energy quota system is still in the early stages, we suggest moving rapidly toward an electronic tracking system—if necessary, starting with a pilot program. As Chinese policymakers and regulators direct the establishment of the infrastructure needed to support the country’s clean energy goals, they have unique opportunities to establish electronic tracking systems that can grow accordingly. The technological maturity and flexibility of these systems offer energy policymakers in China a robust tool that can support policy goals now and as they evolve.
Dr. Ryan Wiser collaborates with RAP’s China team on renewable integration issues and is a well-known expert on issues related to renewable energy program design. Rachael Terada is director of technical projects at the Center for Resource Solutions. Lijun Yue directs RAP’s China program.