Summary

• Against the backdrop of evolving policy frameworks, steel companies are advised to adopt a diversified approach to accessing green electricity, tailoring options to their specific needs and available electricity supplies. Early planning is key to increasing green electricity use while improving the cost efficiency.
• There are three main pathways for steel companies to access green electricity: 1) On-site distributed renewable energy projects (primarily rooftop solar PV) provide direct access to green power and certificates, but are limited in scale and can only meet a small share of total electricity demand. 2) electricity market participation, including green power trading, green certificate purchases, and intra-provincial trading, offers flexibility but involves complex rules and price volatility, requiring a mix of long-term and spot strategies; 3) direct green power connections enable stable pricing and physical traceability, but require high upfront investment and further policy development, making them more suitable for export-oriented and carbon-compliant companies.
• Green electricity certificates help companies meet renewable electricity consumption targets set by the government and serve as a key accounting tool for renewable energy use. However, they may not be internationally recognised, posing a risk for export-oriented companies. As renewable energy becomes more fully integrated into the power market, a portion of the electricity generated may be traded in the conventional electricity market, reducing certificate availability and potentially driving up costs.

According to an article released by Transition Asia in January, “How Low-Carbon Steel Development Accelerates Energy-Sector Decarbonisation in China”, the steel industry can effectively consume large-amounts of green electricity by adopting the “green hydrogen-direct reduced iron-electric arc furnace” process route. Building on this, this article further explores the current national policies related to green electricity and, taking Jiangsu as an example, outlines pathways for steel companies to access green electricity and their applicable scenarios.

China has accelerated electricity market reform through a series of evolving policy measures. In early 2025, the National Development and Reform Commission and the National Energy Administration introduced a new pricing system for renewable energy under the “Notice on Deepening the Market-Oriented Reform of On-Grid Tariffs for Renewable Energy and Promoting its High-Quality Development” (referred below as Document No. 136), and launched direct renewable connection pilots in the same year. ^{1 2} In February 2026, the General Office of the State Council set a clear goal of establishing a unified power market by 2030.³

Against the backdrop of evolving policy frameworks, steel companies can adopt the most cost-effective way to access green electricity while increasing its share in their energy mix.

Currently, the main pathways include self-owned renewable generation (more commonly distributed solar PV), participation in provincial or inter-provincial electricity market trading, more recently, direct renewable connections. However, before the unified national market is fully established, the current electricity market continues to exhibit strong provincial characteristics. Differences in local policies and power supply structures mean that companies must identify the most suitable approach based on their specific operating environment.

Pathway 1: Self-owned Distributed Renewable Energy – Direct and Effective, but Limited in Scale

It is common for steel companies to build rooftop solar PV projects at their production facilities. The largest rooftop solar PV project is the 148MW solar PV project cluster built by Baosteel in its Baoshan production base. In addition, HBIS, Jiangsu Shagang Group, Shanxi Taigang Stainless Steel, Zenith Steel Group, and Ansteel Group have all installed distributed solar PV ranging from 15.8MW to 72.5MW.⁴

These rooftop solar PV projects are usually classified as large-scale industrial and commercial distributed solar PV. In addition to providing direct access to green electricity, these projects can generate additional revenue by selling surplus power back to the grid, subject to specific policy conditions.

Issued in January 2025, the “Measures for the Administration of Development and Construction of Distributed PV Power Generation” stipulate that large-scale industrial and commercial solar PV projects may sell surplus electricity back to the grid and earn additional revenue but only in regions where electricity spot markets are continuously operational. At the implementation level, however, detailed rules vary across provinces.

For example, in Jiangsu, the electricity spot market entered continuous settlement trial operation in September 2025. Companies opting for this model are required to register rooftop PV projects as centralised power plants.  As the volume of electricity exported by distributed generation remains relatively unstable and difficult to forecast on a monthly basis, Jiangsu is expected to continue relying primarily on monthly and intra-month trading for such projects in 2026. Notably, there is no cap on the self-consumption ratio.

In contrast, in other regions, such as Shandong, large-scale industrial and commercial distributed PV projects adopting a “self-consumption with surplus exported to the grid” model are subject to a 50% cap on the self-consumption ratio, and all exported electricity must participate in the electricity spot market.⁵

Table 1: National and Jiangsu Policies on Distributed Solar PV Self-Consumption, with Surplus Electricity Fed into the Grid 

Document No. 136 not only ensures that projects can meet their own green electricity needs, but also establishes a revenue floor for surplus power exported to the grid through an off-site settlement mechanism (the “mechanism price”) similar to a contract-for-difference (CfD) mechanism for renewable energy. When market prices fall below this level, generators are compensated for the shortfall; where they exceed it, the surplus is clawed back. This two-way adjustment mechanism provides greater revenue certainty and effectively guarantees a minimum return for power producers.

At the regional level, detailed implementation rules of Document No.136 have also been introduced. In Jiangsu, price caps and floors have been applied to electricity traded in the spot market to mitigate excessive price volatility. Under these rules, spot market offer and clearing prices are capped at RMB 1.5/kWh and floored at RMB 0/kWh.This framework is particularly relevant for projects operating under a self-consumption with surplus export model. Surplus generation typically occurs during periods of high renewable output, when market prices tend to fall sharply and occasionally even turning negative, as observed in Shandong. By setting a price floor, the mechanism limits downside risk and protects generators from revenue erosion caused by supply–demand imbalances in the power market.

Table 2: National and Jiangsu Policies on the Full Market Integration of Renewable Energy

Self-owned distributed PV systems provide an effective way for steel companies to directly access green electricity and green electricity certificates (GECs). As China’s electricity market continues to evolve, some projects can generate additional revenue by exporting surplus power to the grid. However, due to site constraints, self-owned distributed PV can only meet a very small share of companies’ renewable electricity demand. For example, the rooftop PV project at Baosteel’s Baoshan base generates up to 100 million kWh annually, yet accounts for only around 1% of the site’s total electricity consumption. This low contribution is also observed among smaller steel producers. At one steel plant in Shaanxi, a PV installation with a capacity of 11.17 MW similarly supplies less than 1% of total electricity demand.⁶

From the perspective of economies of scale and overall system efficiency, this decentralised, self-generation model is not the most efficient allocation of resources. As the supply of renewable electricity in China continues to expand rapidly, its efficient integration will increasingly depend on optimisation through a unified national power market.

Pathway 2: Participation in Power Market Trading — the Mainstream Approach, with Relatively Complex Rules Requiring Advance Planning

Participating in green electricity trading or purchasing GECs separately are common approaches for steel companies to meet their renewable energy needs. Green electricity trading follows a “bundled” model, in which electricity and its associated environmental attributes (i.e. the value of GECs) are priced separately, but the GECs are transferred together to the buyer upon completion of the transaction. By contrast, GECs trading involves the standalone purchase of certificates, independent of physical electricity consumption. Green power trading is also typically conducted through medium- to long-term contracts, with trading horizons ranging from multi-year and annual agreements to monthly and intra-month arrangements. Transactions may be concluded through bilateral negotiations, centralised bidding, or listing mechanisms.

The conventional electricity market remains the primary platform for power trading, covering a wide range of generation sources, including thermal, nuclear, wind and solar. It encompasses both medium- to long-term transactions and spot market trading, with transactions conducted through bilateral negotiation, centralised bidding, or listing mechanisms. When purchasing electricity through bilateral contracts or listing mechanisms, buyers can specify the type of generation source (e.g. wind or solar). However, due to the fungibility of electricity, once power is fed into the grid, it is not possible for end-users to distinguish the actual source of the electricity they consume except in specific cases such as direct supply or self-generated power onsite. In other words, even without participating in green power trading, electricity users may still consume a share of renewable electricity. However, as this portion of electricity is not traceable, its environmental attributes cannot be clearly assigned. Nor are green certificates transferred alongside such transactions, meaning it cannot be counted towards renewable electricity consumption compliance. The same applies to inter-provincial electricity trading.

Table 3: Jiangsu Electricity Market Trading Mechanisms and Green Power Analysis

Interprovincial trading is particularly important for regions with limited renewable energy resources but strong electricity demand, with Jiangsu being a case in point. In 2023, annual electricity consumption by the province’s steel sector reached 49.1 billion kWh, accounting for 9.1% of total industrial electricity consumption and 6.2% of overall electricity demand.⁷

However, the volume of green electricity traded in Jiangsu in 2025 is estimated at only around 21 billion kWh, making up less than half of the steel sector’s annual consumption, and this supply must also meet demand from other industries. Looking ahead, as Jiangsu advances industrial electrification and decarbonisation, local green electricity supply is unlikely to keep pace with demand, making cross-provincial procurement indispensable.

To address this gap, Jiangsu has already established several regular interprovincial transmission channels, including ultra-high voltage (UHV) lines such as Yanhuai and Xitai, which deliver renewable electricity from eight provinces and regions, including Qinghai and Xinjiang. In addition, the province plans to expand its imported power capacity to 46 GW by 2027, enable the integration of 130 GW of renewable energy, and secure around 40 billion kWh of green electricity supply through trading.⁸

For companies, participation in interprovincial electricity trading requires close attention to market platform announcements, in particular the  application timelines, and proactive engagement with generators in other provinces for bilateral power purchase agreements.

Taking Jiangsu as an example, the power exchange began collecting intentions for multi-year green electricity trading for 2026 as early as October 2025. Monthly trading is typically organised around half a month in advance, with bidding notices for specific transmission corridors issued by the Beijing Power Exchange.

Interprovincial trading also follows a clear order of priority: annual (including multi-year) transactions take precedence over monthly (including multi-month) transactions, which in turn take precedence over intra-month trades. More broadly, medium- to long-term contracts are prioritised over interprovincial spot trading. Lower-priority transactions are only opened once capacity remains after higher-priority trades have been allocated.⁹ As a result, most interprovincial trading volumes are secured through medium- to long-term contracts. For steel companies seeking to procure electricity from other provinces, it is therefore essential to plan ahead based on annual and monthly demand, engage early with external power generators, to lock in stable green electricity supply in advance.

Table 4: Overview of Interprovincial Electricity Trading Mechanisms and Analysis of Green Power Sources

Pathway 3: Direct Green Power Connections – A New Path for Going Global

Direct renewable power connections were first piloted in the battery sector, driven by the EU Battery Regulation, which requires the use of directly connected renewable electricity data when calculating the electricity emissions factor in product carbon footprints. The concept has since been incorporated into policies for zero-carbon industrial parks, and more recently, has begun to be explored by steel companies. Relevant policies on direct renewable power connections were formally introduced in the first half of 2025. The Notice on Matters Related to the Orderly Promotion of Direct Renewable Power Connections clarified that renewable energy projects may supply electricity directly to end-users via dedicated lines. In September, the Notice on Improving Pricing Mechanisms to Promote the Local Consumption of Renewable Energy Generation (hereafter “Document No. 650”) further clarified the pricing framework.

This policy unlocks additional renewable energy capacity that has been unable to connect to the grid due to curtailment constraints. It allows such projects, after completing the necessary change procedures, to establish direct green power connections. It also encourages dedicated renewable energy plants not to connect to the public grid, but instead to supply green electricity directly to a single power user via dedicated lines.

Direct connection projects can either be developed by end users themselves or structured through long-term power purchase agreements (PPAs) to establish stable supply relationships. This arrangement not only ensures the traceability of power sources, but also provides industrial users with more options for accessing renewable electricity. To some extent, it also alleviates the shortage or mismatch of green power supply and demand in certain regions, and has recently attracted widespread attention from steel companies.

The upfront investment for direct connection projects is relatively complex. In addition to the power plant itself, it also includes supporting infrastructure such as dedicated connection lines, substations, and, in some cases, energy storage (generally not mandatory). Additional power system charges depend on whether public grid assets and services are actually utilised. For off-grid green power direct connection projects that are not connected to the public grid, no transmission and distribution (T&D) charges or system standby fees are payable. By contrast, grid-connected direct connection projects may purchase electricity from the public grid to address shortfalls in renewable generation, and therefore are still required to bear a share of T&D charges and system standby fees.

Companies can choose, based on their own circumstances, either to pay T&D charges for the grid-supplied portion based on contracted capacity (or demand), or to adopt a two-part T&D tariff structure. Under the capacity (or demand)-based model, companies are suggested to align the configuration of renewable projects with their actual electricity needs.¹¹

If equipment utilisation is insufficient and the project’s average load factor falls below the provincial benchmark for industrial and commercial users at or above 110 kV under the two-part tariff system, T&D costs may increase.

For companies with higher requirements for supply stability, they may opt for the prevailing two-part T&D tariff, which consists of capacity charges and energy charges, including electricity generated for self-consumption. System operation fees cover the routine costs of grid operation and are charged based on the volume of electricity drawn from the grid, i.e. settled based on electricity purchased from the grid. Meanwhile, electricity generated and consumed on-site is, for the time being, exempt from policy-driven cross-subsidies designed to maintain stable electricity prices for residential and agricultural users.

In addition, companies are advised to pay close attention to local implementation rules when applying for such projects. For example, provinces such as Yunnan, Jiangxi, and Ningxia have further clarified, based on Document No. 650, that in principle the power source and the end user should be located within the same prefecture or city, with a distance of less than 30 km or 50 km depending on provincial requirements.

In Sichuan, regions including Aba Prefecture, Ganzi Prefecture, Liangshan Prefecture, and Panzhihua have tightened the requirement under Document No. 650 that the proportion of electricity fed into the grid should not exceed 20%, further reducing it to 10%.

These projects  enable physical traceability of renewable electricity, which is particularly advantageous for export-oriented companies, especially those subject to the Carbon Border Adjustment Mechanism (CBAM). For example, a direct connection project in Dongying, Shandong is integrated with the province’s blockchain-based green electricity trading platform, generating an “electricity–carbon” certificate every 15 minutes. This enables compliance with CBAM requirements to use actual values rather than default values for calculating indirect emissions from electricity.¹² The project connects battery production facilities via dedicated lines to 345 MW of installed wind and solar capacity, supported by 1,200 MWh of energy storage, along with two 110 kV substations and two dedicated 110 kV transmission lines.¹³

According to data from the National Energy Administration, a total of 84 green power direct connection projects nationwide had been approved as of the end of February.¹⁴

Recently, some provinces have begun releasing requirements and project lists for direct renewable power connections. Eligibility criteria and prioritisation vary by region. For example, Hebei prioritises projects involving the steel sector, as well as those that achieve clean energy substitution by reducing output from captive power plants. From a supply perspective, priority is often given to projects in the pipeline, those not yet grid-connected or facing curtailment, and those located near end-users.

A number of steel companies are already actively planning such projects. Examples include a proposed 200 MW solar direct connection project by Xin Wuan Iron & Steel Group, a 50 MW distributed wind project by Aosen Special Steel Group, a 115 MW wind project by Tangshan Zhengfeng Steel, as well as multiple projects by Zhongshou Special Steel and Shougang Qian’an (350 MW wind; 310 MW solar and 250 MW wind, respectively), and a 200 MW wind project by Tangshan Donghua Steel. Notably, these projects are all being self-financed by the steel companies.

Conclusion

The full market integration of renewable energy does not automatically resolve the challenges steel companies face in their energy transition. For an industry characterised by large-scale electricity consumption and increasingly stringent carbon constraints, the key lies in developing a renewable electricity procurement portfolio that best fits each company’s specific needs. In practice, while on-site distributed solar PV can provide direct access to green electricity and green certificates, its contribution is inherently limited by space constraints and is unlikely to serve as a primary power source.

Companies are strongly suggested to adopt a diversified approach to green electricity procurement. From a cost perspective, although the conventional electricity market currently offers a cost advantage over green electricity trading, electricity purchased through the conventional market still requires separate procurement of green certificates. With certificate prices potentially rising under the influence of Document No. 136, this may not represent the most cost-optimal option in the future.

Instead, companies can combine green electricity trading with participation in the conventional market. Actively engaging in the electricity spot market is particularly beneficial for companies that rely on electric arc furnaces (EAFs), as their operational flexibility allows them to respond to price differentials by shifting production to lower-price periods to reduce overall costs and offset part of the premium associated with green electricity or standalone certificate purchases.

For electricity-intensive sectors such as steel, entering into long-term bilateral agreements can also help mitigate price volatility associated with the rapid expansion of renewable energy, thereby improving cost stability.

At the same time, companies can explore interprovincial green electricity trading, particularly those located in regions with limited renewable resources but high power demand. For companies with export exposure, it is increasingly important to pursue renewable electricity sources with physical traceability, such as direct renewable power connections, in order to meet tightening international carbon disclosure requirements.

Strong government efforts to drive grid decarbonisation will enable the manufacturing sector to reduce Scope 2 emissions more efficiently. The energy transition of steel companies is closely linked to the decarbonisation of the power sector. At present, the high cost of self-developed solar PV projects, combined with the limited scale of green electricity trading, makes it difficult to fully meet the steel industry’s renewable electricity demand. As the power sector further decarbonises and integrates a higher share of renewable energy into the grid, the grid intensity will decline. At the same time, this will expand the availability of renewable electricity in market-based trading. As a result companies can lower the carbon intensity of their electricity consumption even through the conventional market, with additional GEC purchases where needed to meet renewable consumption targets.

At the same time, as overseas requirements for carbon emissions disclosure continue to tighten, reducing the grid emissions factor will help lower compliance costs for export-oriented companies.

Governments can also play a proactive role by developing platforms or mechanisms that enable the physical traceability of renewable electricity for companies with such needs. Examples include the development of zero-carbon industrial parks, the digitalisation of power systems, and the integration of smart metering with blockchain-based solutions.

1. https://www.gov.cn/zhengce/zhengceku/202502/content_7002959.htm
2. https://www.ndrc.gov.cn/xxgk/zcfb/tz/202505/t20250530_1398138.html
3. http://www.scio.gov.cn/zdgz/jj/202602/t20260212_952499.html
4. https://www.greenpeace.org.cn/wp-content/uploads/2025/11/green-power-consumption-in-china-steel-industry-report-2025.pdf
5. Detailed Implementation Rules for the Administration of Distributed Photovoltaic Power Generation Development and Construction in Shandong Province《山东省分布式光伏发电开发建设管理实施细则》
6. Green Steel Partner, 2025,2025 Case Studies of Low-Carbon ransition Practices by Chinese Steel Companies
7. https://mp.weixin.qq.com/s/lHJ_d9Wd_wVYQL3cjIYqyg
8. https://www.jfdaily.com/sgh/detail?id=1455985
9. Direct dispatch capacity is not taken into account in this analysis.
10. https://transitionasia.org/enabling-chinas-green-steel-transition/
11. Capacity (or demand) charge = current regulated capacity (or demand) charge + electricity tariff at the relevant voltage level × average load factor × 730 hours × grid-connected capacity. Average load factor is based on provincial averages for ≥110 kV industrial and commercial two-part tariff users, as published by the provincial price authority. Grid-connected capacity refers to total transformer capacity and directly connected high-voltage motor capacity.
12. CBAM does not currently cover indirect emissions from steel. For companies under CBAM that calculate emissions using actual electricity-related emissions (rather than default values), it requires providing generation-side and consumption-side data with a time resolution of no more than one hour.
13. https://msolar.in-en.com/html/solar-2457077.shtml
14. https://mp.weixin.qq.com/s/bBrvCVClH-NEs3yVaxRVfA

Vittoria Chen

Research Analyst