Zheshang: Transition policy drives green electricity and green certificate premiums are expected to increase.

Zheshang Research Report states that the entire system of China's green certificate market has been basically established. The elasticity of future green certificate supply lies in further increasing the coverage rate of green certificate issuance, with limited room for supply growth. On the demand side, provincial governments are considering the pressure of energy consumption dual control assessments and renewable energy consumption assessments, which will be decomposed to enterprises within the province, prompting companies to purchase green certificates; the increasingly improved sustainable reporting disclosure system and the imminent establishment of overseas green trade barriers have also increased the demand for green certificates. Overall, the supply-demand gap of green certificates is narrowing, excess pressure is easing, and prices are expected to further rise. Additionally, in terms of overseas green trade barrier recognition, direct green electricity connection > green electricity trading > certificate-electricity separation, it is expected to promote the development of direct green electricity connection mode in China. Zheshang's main points are as follows: The institutional mechanism of China's green certificate system is basically sound. After 2023, a series of related policies have been continuously introduced, significantly accelerating the construction of China's green certificate mechanism. At the top-level design, the "Energy Law" clearly states that the country establishes a mechanism to promote green energy consumption through the implementation of green certificates and other systems, establishing the legal status of green certificates. The basic system/core system/trading system of the green certificate market continues to improve, and its connection with systems such as the carbon market is gradually being implemented, forming a "1+3+N" system. In terms of infrastructure, the registration of centralized renewable energy sources has basically achieved full coverage; in 2024, the national issuance of green certificates reached 4.734 billion, an increase of 28.36 times compared to the previous year, with a trading volume of 446 million, an increase of 3.64 times year-on-year. Looking ahead, the supply-demand gap of green certificates is narrowing, and prices are expected to further rise. On the supply side, the national issuance of green certificates in 2024 was 4.734 billion, but 2.901 billion green certificates corresponding to electricity generated in 2023 and prior years will be supplemented, resulting in a decrease in the number of green certificates issued this year. Looking ahead to marginal changes in supply, in addition to the increasing penetration rate of renewable energy sources each year, the main room for growth lies in the increase in the coverage rate of green certificate issuance. According to our calculations, based on the installed capacity of power sources, the coverage rate of registered green certificates is 75.69%. The main installed capacity that is not covered is distributed photovoltaics and scattered wind power, with limited flexibility brought by further coverage. Demand is driven by multiple factors. Firstly, there is the pressure of energy consumption dual control assessments. In 2025, the final year of the "Fourteenth Five-Year Plan," provinces will push energy-consuming enterprises to purchase green certificates to lower their energy consumption levels in order to meet the energy consumption dual control assessment goals. According to our calculations, provinces such as Zhejiang, Henan, Qinghai, Guangdong, Shaanxi, and Hainan may face greater assessment pressure. Secondly, there is the renewable energy consumption assessment. This year, green certificates have been included in the consumption assessment system, and the consumption of key industries is completely calculated based on green certificates. Calculating based on the 25% green electricity consumption rate in the steel/multicrystalline silicon/cement industries and the 80% green electricity consumption rate in data centers, the required number of green certificates is about 300 million, accounting for around two-thirds of the current green certificate turnover. In addition, as sustainable information disclosure in China continues to progress and the establishment of overseas green trade barriers is imminent, these two factors will also drive demand for green certificates. Trade acceptance degree: direct green electricity connection > green electricity trading > certificate-electricity separation, opening up a new direct connection mode. Among the major overseas green trade barriers of concern, the EU's "New Battery Regulation" only recognizes physical direct connection as green electricity use, while the CBAM recognizes green electricity trading agreements and physical direct connection. Green certificates are mainly used in the green electricity accounting of supply chain enterprises with RE100 as the core. The trade acceptance degree is: direct green electricity connection > green electricity trading > certificate-electricity separation. In May 2025, the NDRC also introduced new policies to support the development of direct green electricity connection mode, which is expected to become a rapidly growing new format in the consumption of green electricity. Risk factors include: policy change risks; market sentiment and preference volatility risks; data change risks.