Thread by @pretentiouswhat

1.
This story was a Big Deal in China Energy this week and I didn't notice much chatter about it so I guess I'd better do a thread. 😎

China Green Power Procurement for Dummies:

So BASF has entered into Guangdong's first "RE-DPP." What does that stand for?

https://twitter.com/thisisGBA/status/1407652359887458313

2.
RE-DPP stands for Renewable Energy Direct Power Purchase.

Basically the end-user (Germany's BASF) has signed a direct wholesale agreement with the power generator (China Resources) to procure ONLY green power via the wholesale market directly from the generator.

3.
While it has been possible in China for end-users and generators to sign direct contracts for a while, RE has been mostly excluded from this, unlike more liberalized power markets worldwide.

Allowing RE to now compete in this way is a Big and Good Thing in 3 ways. How so?

4.
Way 1: Allowing RE to compete in a wholesale market gives end-users an option to prove green power usage beyond onsite solar/green credits.

They now have a strong CSR story to tell. They can point to a whole new RE farm and say "we built that".

Additionality is good optics.

5.
Way 2: Of course it's also good news for the renewable energy generators. They now have a channel for direct access to customers that want exactly what they're selling. They don't have to worry about dispatch quotas or grid offtake risk etc. Guaranteed customers.

6.
Way 3: Finally, it's also good for decarbonization goals in general. Allowing RE to participate in wholesale exchanges brings us one step closer to a truly economic power market, where the cheapest power prospers and the expensive power is forced to shut down.

7.
Of course a few years ago, that would mean RE would be under pressure, as it was more expensive than coal.

These days it's competitive and even cheaper in some provinces. So participating in market competition makes sense now. Fossil generators will face the pressure instead.

8.
Previously RE was only able to participate in DPP in a few provinces, and in a a restrictive way, as summarized in this quote from a PV Magazine article

pv-magazine.com/2020/02/27/ren…:

9.
So yeah, an industrialized, net power-importing province like GD allowing direct power purchases between end users and RE generators is a Big Deal.

Already, other MNCs in GD with green power commitments are taking notice of the BASF deal, and they're reaching out to us. 😉

BTW, for the quant minded, how much additionality does this deal imply exactly?

BASF facility contracted 245 GWh. If that was satisfied entirely with solar, that would theroetically translate into a ~100-125MW solar PV farm (based on GD solar irradiance/capacity factor).

Fin.