How do you sell green electricity? This 10 billion order explores new answers
2022-04-01
After one year, China's first new energy long-term power purchase agreement (PPA) was finally settled.
On March 22, the state power investment and BASF signed a 25 year renewable energy cooperation framework agreement to supply renewable energy power to the follow-up units of BASF's new integrated base in Zhanjiang, Guangdong. According to this agreement, the green power traded between the two sides is mainly supplied by Guangdong, with the green power resources near the national power investment as the backup, mainly offshore wind power and photovoltaic power.
At present, the state power investment has become the world's largest new energy power generation enterprise and photovoltaic power generation enterprise. This also makes it bear the brunt of the need to face the new era of China's green power consumption and trading.
An insider of state power investment Guangdong company told "visibility". The signing of this agreement is of great significance to both state power investment and BASF. It is a breakthrough demonstration case of realizing cross-border industrial cooperation, complementary advantages, mutual empowerment, mutual benefit and win-win results.
BASF, the other party to the agreement, also sees it as an important opportunity for the company to accelerate its transformation.
The company will advance the target of "100% renewable energy power supply for Zhanjiang integrated base" from 2030 to 2025. "Thanks to the rapid development of China's renewable energy market, we are pleased to accelerate the realization of the renewable energy power supply target of the base earlier than expected. By then, BASF will be able to bring all 'made in Zhanjiang' products to the market with a minimum carbon footprint, benefiting customers and communities." Said weiershi, President of BASF's large-scale projects in Asia.
"With the implementation of the 100% renewable energy power supply plan of BASF Zhanjiang integrated base, BASF is moving towards the goal of achieving zero net emissions by 2050," said Kayley, member of the Executive Board of BASF Europe
This agreement, which is enough to be recorded in the history of China's green power trading, was born under a special historical background: on the one hand, from this year, offshore wind power will cancel national financial subsidies; On the other hand, the guidance on accelerating the construction of a national unified power market system proposes that new energy will fully participate in market transactions by 2030. The countdown to the full amount of new energy entering the market. In the pilot provinces of market-oriented reform, it is time for some electricity to enter the market for trading.
"The marketization of new energy can only be developed through such long-term contracts." An industry veteran told "visibility".
As mentioned earlier, the market entry of new energy has entered the countdown. In a perfectly competitive market, under the influence of the law of value, the market price will fluctuate up and down under the influence of supply and demand. This is completely different from the operation mechanism of benchmark electricity price and full guaranteed purchase in China's new energy industry in the past 20 years.
We can make an analogy with the market-oriented reform of coal price 20 years ago. In 2002, affected by China's accession to the WTO, the government cancelled the guiding price of power coal, and the coal industry was fully market-oriented. Over the next two decades, we have witnessed the ups and downs of coal prices and the ups and downs of coal owners. "Coal boss" once became synonymous with speculators in China's energy industry.
China's new energy industry is also facing the risk of investors turning into speculators. The huge difference between new energy and coal in cost composition may further strengthen this risk.
The main cost of coal-fired units is variable cost, and the linkage between coal price and electricity price can be realized. However, new energy shows the characteristics of high fixed cost, low variable cost and almost zero marginal cost. Investors need to invest most of their funds at the beginning of the project. This makes industrial investors in the field of new energy more need a relatively stable and long-term price expectation than fossil energy. Otherwise, the high uncertainty of future income will only turn investors who pursue stable and low returns into speculators who win high returns in high risks. Risk itself is the most important valuation factor of capital. When the high capital cost of risk becomes the main cost component of renewable energy, the overall social cost of energy transformation will be unbearable. To make matters worse, when high returns are not expected and investors who pay full tuition fees in the market withdraw, new energy will also become an unpopular industry from a crowded market.
It is true that a mature market needs both investors and speculators, but the particularity of China's new energy industry is that it needs to guide and protect the growth of investors rather than speculators under market conditions than most other industries. If the new energy industry is really cooled as mentioned above, it will have a disastrous impact on the "30.60" dual carbon goal.
In fact, countries around the world are striving to minimize the uncertainty of future income of renewable energy assets at the policy level. The fixed price on grid mechanism (FIT) and contract for difference mechanism stipulated by the government, as well as the PPA mechanism formed by SDIC and BASF this time, can play such a role. Each country pursues the most basic solutions driven by the same economic laws.
The established direction of China's electricity market-oriented reform and the withdrawal of government subsidies from the new stage of development in the field of renewable energy power generation determine that our renewable energy projects can only seek low-risk and stable income in the future under the condition of market fluctuating price, rather than the guaranteed purchase condition endorsed by the government finance. The business model in the form of long-term power purchase contract (PPA) has become the mainstream, In order to create feasible conditions for large-scale investment in renewable energy power generation in the future.
"To understand the PPA contract signed between SDIC and BASF from the perspective of the first investment principle, perhaps many years later, when we look back, we will find that this is a historic breakthrough. If such a contract can not be popularized rapidly on a large scale and become an absolute success, we will also realize that this is a historic failure." The industry insider sighed about "visibility".
With the long-term power purchase contract, if new energy can realize the transformation from childhood to adulthood in the market competition, it will greatly boost China's whole "double carbon" cause.
This year's government work report puts forward: "promote the energy revolution, ensure energy supply, based on resource endowment, adhere to the establishment before destruction, overall planning, and promote the low-carbon transformation of energy." The central economic work conference held in December last year also pointed out: "the gradual withdrawal of traditional energy should be based on the safe and reliable substitution of new energy."
First stand and then break, "first stand" is the key. The purpose of market-oriented reform is to force the new energy industry to mature as soon as possible, rather than strangle it in the cradle. Therefore, both new energy enterprises and relevant government departments need to recognize the reality and pay more attention to the long-term power purchase contract of new energy.
The long-term power purchase contract of new energy not only needs the market participants to improve their understanding level, but also needs the scientific and powerful guidance of the government.
In the past decades, under the operation mechanism of China's power market, power generation enterprises have been disconnected from power customers for a long time. Both sides only need to face the middleman of power grid enterprises. Therefore, in the process of signing the long-term green power contract, at least in the initial stage, the government should play the leading role of "matchmaking" and provide endorsement for the signing and performance of the agreement, so as to improve the efficiency and success rate of cooperation. Power generation enterprises and large power users with green power demand need to change their cognition from relying on national production and marketing to seeking alternative solutions under market rules as soon as possible. This is also the due meaning of the two wheel drive of the government and the market under the dual carbon goal.
The relevant national energy and market authorities may have more things to complete in the future, such as the standardization of PPA contracts, the guidance and supervision of prices, the market construction of PPA itself as a tradable product, and so on. However, a journey of a thousand miles begins with a single step. Only by guiding the green power supply and demand sides to produce more PPA and escort its implementation as soon as possible can we learn from the battle and improve the market construction required for the development of new energy in the new historical stage.
It is believed that with the deepening of power market-oriented reform, there will be more and more participants in such long-term contracts in the future, and will eventually become a new business model of new energy in the new development stage. From this perspective, the long-term power purchase contract between state power investment and BASF is not only the largest green power transaction since China's market-oriented reform, but also sets a new navigation mark for the healthy and sustainable development of China's new energy under market conditions.
On March 22, the state power investment and BASF signed a 25 year renewable energy cooperation framework agreement to supply renewable energy power to the follow-up units of BASF's new integrated base in Zhanjiang, Guangdong. According to this agreement, the green power traded between the two sides is mainly supplied by Guangdong, with the green power resources near the national power investment as the backup, mainly offshore wind power and photovoltaic power.
At present, the state power investment has become the world's largest new energy power generation enterprise and photovoltaic power generation enterprise. This also makes it bear the brunt of the need to face the new era of China's green power consumption and trading.
An insider of state power investment Guangdong company told "visibility". The signing of this agreement is of great significance to both state power investment and BASF. It is a breakthrough demonstration case of realizing cross-border industrial cooperation, complementary advantages, mutual empowerment, mutual benefit and win-win results.
BASF, the other party to the agreement, also sees it as an important opportunity for the company to accelerate its transformation.
The company will advance the target of "100% renewable energy power supply for Zhanjiang integrated base" from 2030 to 2025. "Thanks to the rapid development of China's renewable energy market, we are pleased to accelerate the realization of the renewable energy power supply target of the base earlier than expected. By then, BASF will be able to bring all 'made in Zhanjiang' products to the market with a minimum carbon footprint, benefiting customers and communities." Said weiershi, President of BASF's large-scale projects in Asia.
"With the implementation of the 100% renewable energy power supply plan of BASF Zhanjiang integrated base, BASF is moving towards the goal of achieving zero net emissions by 2050," said Kayley, member of the Executive Board of BASF Europe
This agreement, which is enough to be recorded in the history of China's green power trading, was born under a special historical background: on the one hand, from this year, offshore wind power will cancel national financial subsidies; On the other hand, the guidance on accelerating the construction of a national unified power market system proposes that new energy will fully participate in market transactions by 2030. The countdown to the full amount of new energy entering the market. In the pilot provinces of market-oriented reform, it is time for some electricity to enter the market for trading.
"The marketization of new energy can only be developed through such long-term contracts." An industry veteran told "visibility".
As mentioned earlier, the market entry of new energy has entered the countdown. In a perfectly competitive market, under the influence of the law of value, the market price will fluctuate up and down under the influence of supply and demand. This is completely different from the operation mechanism of benchmark electricity price and full guaranteed purchase in China's new energy industry in the past 20 years.
We can make an analogy with the market-oriented reform of coal price 20 years ago. In 2002, affected by China's accession to the WTO, the government cancelled the guiding price of power coal, and the coal industry was fully market-oriented. Over the next two decades, we have witnessed the ups and downs of coal prices and the ups and downs of coal owners. "Coal boss" once became synonymous with speculators in China's energy industry.
China's new energy industry is also facing the risk of investors turning into speculators. The huge difference between new energy and coal in cost composition may further strengthen this risk.
The main cost of coal-fired units is variable cost, and the linkage between coal price and electricity price can be realized. However, new energy shows the characteristics of high fixed cost, low variable cost and almost zero marginal cost. Investors need to invest most of their funds at the beginning of the project. This makes industrial investors in the field of new energy more need a relatively stable and long-term price expectation than fossil energy. Otherwise, the high uncertainty of future income will only turn investors who pursue stable and low returns into speculators who win high returns in high risks. Risk itself is the most important valuation factor of capital. When the high capital cost of risk becomes the main cost component of renewable energy, the overall social cost of energy transformation will be unbearable. To make matters worse, when high returns are not expected and investors who pay full tuition fees in the market withdraw, new energy will also become an unpopular industry from a crowded market.
It is true that a mature market needs both investors and speculators, but the particularity of China's new energy industry is that it needs to guide and protect the growth of investors rather than speculators under market conditions than most other industries. If the new energy industry is really cooled as mentioned above, it will have a disastrous impact on the "30.60" dual carbon goal.
In fact, countries around the world are striving to minimize the uncertainty of future income of renewable energy assets at the policy level. The fixed price on grid mechanism (FIT) and contract for difference mechanism stipulated by the government, as well as the PPA mechanism formed by SDIC and BASF this time, can play such a role. Each country pursues the most basic solutions driven by the same economic laws.
The established direction of China's electricity market-oriented reform and the withdrawal of government subsidies from the new stage of development in the field of renewable energy power generation determine that our renewable energy projects can only seek low-risk and stable income in the future under the condition of market fluctuating price, rather than the guaranteed purchase condition endorsed by the government finance. The business model in the form of long-term power purchase contract (PPA) has become the mainstream, In order to create feasible conditions for large-scale investment in renewable energy power generation in the future.
"To understand the PPA contract signed between SDIC and BASF from the perspective of the first investment principle, perhaps many years later, when we look back, we will find that this is a historic breakthrough. If such a contract can not be popularized rapidly on a large scale and become an absolute success, we will also realize that this is a historic failure." The industry insider sighed about "visibility".
With the long-term power purchase contract, if new energy can realize the transformation from childhood to adulthood in the market competition, it will greatly boost China's whole "double carbon" cause.
This year's government work report puts forward: "promote the energy revolution, ensure energy supply, based on resource endowment, adhere to the establishment before destruction, overall planning, and promote the low-carbon transformation of energy." The central economic work conference held in December last year also pointed out: "the gradual withdrawal of traditional energy should be based on the safe and reliable substitution of new energy."
First stand and then break, "first stand" is the key. The purpose of market-oriented reform is to force the new energy industry to mature as soon as possible, rather than strangle it in the cradle. Therefore, both new energy enterprises and relevant government departments need to recognize the reality and pay more attention to the long-term power purchase contract of new energy.
The long-term power purchase contract of new energy not only needs the market participants to improve their understanding level, but also needs the scientific and powerful guidance of the government.
In the past decades, under the operation mechanism of China's power market, power generation enterprises have been disconnected from power customers for a long time. Both sides only need to face the middleman of power grid enterprises. Therefore, in the process of signing the long-term green power contract, at least in the initial stage, the government should play the leading role of "matchmaking" and provide endorsement for the signing and performance of the agreement, so as to improve the efficiency and success rate of cooperation. Power generation enterprises and large power users with green power demand need to change their cognition from relying on national production and marketing to seeking alternative solutions under market rules as soon as possible. This is also the due meaning of the two wheel drive of the government and the market under the dual carbon goal.
The relevant national energy and market authorities may have more things to complete in the future, such as the standardization of PPA contracts, the guidance and supervision of prices, the market construction of PPA itself as a tradable product, and so on. However, a journey of a thousand miles begins with a single step. Only by guiding the green power supply and demand sides to produce more PPA and escort its implementation as soon as possible can we learn from the battle and improve the market construction required for the development of new energy in the new historical stage.
It is believed that with the deepening of power market-oriented reform, there will be more and more participants in such long-term contracts in the future, and will eventually become a new business model of new energy in the new development stage. From this perspective, the long-term power purchase contract between state power investment and BASF is not only the largest green power transaction since China's market-oriented reform, but also sets a new navigation mark for the healthy and sustainable development of China's new energy under market conditions.