China’s National Development and Reform Commissions (NDRC) – the country’s chief economic planning body – announced that a “green certificates” program for solar and wind power will be launched beginning on July 1, 2017. The certificates issued by the program will be similar to the Renewable Energy Credits issued in the United States, and will each represent 1MW of electricity output from solar or wind generation. The program will be initiated on a voluntary basis at first, and is expected to become mandatory in 2018.

The new green certificates scheme is intended to ease the burdens on the renewable energy fund which supplies the currently received by solar and wind-power producers in China. Shortfalls in the fund have resulted in delays of as long as two years for power producers to collect their subsidies. When the scheme becomes mandatory, firms that fail to meet certain renewable power requirements (yet to be announced) will be required to purchase certificates to cover the shortfall. Prices for the certificates will be determined by the market, subject to a cap at the level of subsidies currently received by power producers. This cap will result in a decrease in the total amount of subsidies received by renewable power producers, but may improve liquidity by reducing the delays experienced by the renewable energy fund.

The plan aims to increase the share of non-hydro power renewable energy in China from 12% to 15% by 2020, at which time power producers will be required to generate at least 9% of their energy from such sources. The introduction of green certificates may put additional pressure on China’s coal-fired power plants, for which plant utilization declined by 4% to 4,000 hours on average in 2016, the lowest level in 53 years.