The National Energy Development Strategy Action Plan (2014-2020) clearly states that by 2020, the proportion of non fossil energy in China's primary energy consumption should reach 15%. To achieve this strategic goal, renewable energy represented by wind and solar power generation is indispensable. However, after experiencing severe wind and solar power curtailment issues in 2016, the reform of renewable energy policy mechanisms is urgently needed.

Counting the incentive policies for renewable energy in foreign countries, they can be mainly divided into two categories: one is the fixed electricity price model, which supports the development of renewable energy through electricity price subsidies; Another type is the "renewable energy quota system+green certificate trading" model. With the increasing phenomenon of wind and solar power curtailment and the difficulty in obtaining subsidy funds, there are more and more discussions in China about the latter policy model.

In China, the renewable energy quota system has been discussed more than action and debated more than consensus since its official introduction in 2009, and it has not yet been formally implemented. In February of this year, the National Development and Reform Commission, the Ministry of Finance, and the National Energy Administration jointly issued a notice on the trial of the issuance of renewable energy green power certificates and the voluntary subscription trading system. The voluntary subscription trading was launched on July 1st, once again showing the "dawn" to the outside world. However, the current understanding of the renewable energy quota system by government departments is not sufficient. To truly make this system effective, it is necessary to learn from international experience and have a more comprehensive understanding of its operating mechanism.

The point of action should be on the demand side

The renewable energy quota system is a policy that focuses on the demand side rather than stimulating the supply side. More than 30 states in the United States have implemented renewable energy quota systems, most of which are not aimed at power generation companies, but at their trading partners - power purchasers. This means that power purchasing companies in the wholesale electricity market must have a certain proportion or quantity of their purchased electricity from renewable energy sources. This is very important. If we blindly stimulate the supply side and demand power generation companies, the electricity generated will not be connected to the grid, and will only make the phenomenon of wind and solar power curtailment, which has plagued the energy industry for many years, increasingly serious. To meet legal requirements, the demand side naturally seeks and purchases renewable energy electricity through the market. This creates a market for power generation companies and independent power producers focused on renewable energy development, giving them the motivation to continue developing renewable energy.

The current domestic policies have not paid enough attention to this point. In April 2016, the National Energy Administration, which was eager to develop renewable energy, once again issued a notice on the requirements for establishing a quota assessment system for non hydro renewable energy generation of coal-fired power units. The notice clearly stated that in 2020, the proportion of non hydro renewable energy generation quotas to thermal power generation undertaken by each coal-fired power generation enterprise should be at least 15%. This requirement has two flaws: being too forward and whipping the supply side can indeed promote the increase of renewable energy generation capacity and capacity, but what if it cannot be absorbed? We can only go to the power grid company again, and this approach of treating the head and feet is often laborious and unrewarding. Secondly, the demand should be placed on existing thermal power enterprises, disregarding their technological and comparative advantages in the field of thermal power. It is better to use market means to enable those enterprises with technological advantages in renewable energy generation to take on the responsibility of developing renewable energy. An effective measure to achieve this is to establish a feasible trading system for renewable energy green power certificates (known as "Tradable Renewable Energy Credits" in the United States).

In the process of formulating policies targeting the demand side, it is worth emphasizing that legislation on renewable energy quota systems usually specifies specific quota requirements (ratios or quantities), but it does not mean that the higher the quota is set, the greater the policy strength. The policy intensity generated by the quota system will also be influenced by many factors, such as policy coverage. In some states in the United States, such as Maryland, Iowa, Texas, Hawaii, Minnesota, and Wisconsin, all electricity retailers are subject to legislative constraints; But in Montana, the quota system only applies to privately-owned electricity sales companies, and about 55% of the electricity market is not subject to this system. The smaller the policy coverage, the smaller the policy intensity. For example, in terms of the treatment of existing renewable energy installed capacity, in some states in the United States, such as Arizona, Massachusetts, Montana, and Vermont, only the newly added installed capacity after the quota system is established can be used to meet quota requirements. However, in most states, the existing installed capacity at the time of quota system establishment can also be used to meet quota requirements. Under the same quota indicators, restricting the use of newly installed capacity to meet quota requirements will undoubtedly effectively increase policy intensity. These experiences from abroad remind Chinese policy makers that while development goals are important, they must also consider numerous design elements that may affect policy effectiveness when formulating policies.

Green certificate trading should be a game of chess for the whole country

The renewable energy quota system is a market-oriented system, not a planning oriented system. Therefore, another important design element of the renewable energy quota system is the renewable energy green power certificate trading system. All electricity produced by renewable energy generation enterprises will obtain a green certificate, which can be freely traded in the market. In this way, the purchasing entity can have multiple ways to meet the quota requirements: it can directly purchase electricity generated by renewable energy generation enterprises; When there are problems with power transmission, it can purchase green certificates from renewable energy generation companies to meet quota requirements. This system gives renewable energy electricity two commodity attributes, one is normal electricity, which is sold in the market like thermal power; Another type is the green certificate that represents its ecological attributes and can also be sold through the market to generate revenue. Under the requirements of renewable energy quotas, power purchasers have the incentive to purchase green certificates because the fines they face for failing to meet the quota requirements are usually several times the price of green certificates in the market. Only with fines as the 'big stick' can an active green certificate trading market be formed.

Without the renewable energy quota system in the green certificate trading market, it can only be a reprint of traditional planned economy thinking, forcing power generation companies and power purchasers to develop a certain proportion of renewable energy through orders and mandatory means, which will inevitably bring huge pressure on enterprises to increase costs. The purpose of designing the green certificate trading system is to achieve cost reduction through market trading mechanisms while determining the goal of achieving the total development of renewable energy. Through market transactions, thermal power companies without advantages in renewable energy development do not need to develop wind and solar power, but rather rely on renewable energy generation companies with technological advantages to undertake this task.

In the United States, almost all states have established green certificate trading systems, but in a considerable number of states, green certificates only allow intra state trading. Policy makers believe that allowing cross state trading will reduce the promotion effect of quota systems on the development of renewable energy in their own states. Restricting out of state transactions, while protecting local interests, is not conducive to reducing the overall cost of renewable energy generation and goes against the original intention of the system design. The Chinese government has greater authority and is relatively easy to break through local protectionism, establishing a unified national green certificate trading market. Currently, the China Green Power Certificate Subscription and Trading Platform, which undertakes the task of voluntary subscription and trading of national green certificates, has achieved a good start. In the future, this unified market should be avoided from being fragmented.

As a responsible major country, China has made a solemn commitment to the international community to reduce carbon emissions and develop renewable energy. When formulating relevant policies, it is necessary to be extremely cautious. How to achieve greater policy effects with small costs and how to balance the relationship between economic costs and environmental protection requires policy makers to always maintain a clear and rational policy-making approach.