Regulation on Microgrid & Insights on Environmental Compliance
As more microgrids emerge and start to play a vital role in the electricity market, Chinese government starts to build an effective regulatory framework to encourage and supervise their development. Specific environmental compliance requirements are coming into play, to move the environment-protection reform forward.
◆ Towards an Effective Regulatory Framework for Grid-connected Microgrids
The National Development and Reform Commission, together with the National Energy Administration, published the official Regulation on Grid-connected Microgrids (the “New Regulation”) on July 17 after a five-month public opinion solicitation period. The New Regulation will establish an effective regulatory framework and encourage end users to consume locally generated distributed renewable electricity. Compared to the draft regulation, the New Regulation solved a few concerns raised by power companies during the public opinion solicitation period. Here are some highlights:
New Regulation will apply to grid-connected microgrids only. There are two types of microgrids. One is connected to and operates synchronously with the traditional power grid, and the other is disconnected and functions autonomously in a remote off-grid mode. The draft regulation did not distinguish between these two types and seems to govern both, while the New Regulation clarified that only those connected to the traditional power grid shall be governed.
There will be no more double role of both referee and player. The draft regulation proposed to authorize power companies to formulate the requirements, procedures, timeline and service criteria for microgrid connection. This might result in a counter-productive effect as the power companies will play a double role as both referee and player. The New Regulation clearly defines the boundary between the regulators and market players, as it only authorizes the provincial governments, rather than the power companies, to determine the rules.
Favorable investment policies are about to come into play. The New Regulation encourages private investors to develop microgrid projects on a public-private-partnership (PPP) basis and operate through franchising. Investors can fund their projects through corporate bonds, project bonds, dedicated fund, medium term note or “green bond”. For power companies, it wasn’t clear for a long time whether they were permitted to invest in new power grid projects. Though the New Regulation does not give a definite answer, at least it authorizes them to develop and operate new microgrids this time.
◆ Latest News on Environment-Protection Compliance
The Ministry of Environmental Protection (the “MOEP”) started to solicit public opinion on the Draft Regulation on Pollutant Discharge Permit (the “Draft”) on July 17, and will publish the official regulation in the near future. The one-permit policy is the highlight of this Draft. Current laws require a discharge permit for each type of pollutant, i.e. solid wastes, sewage, air pollutant, etc. The Draft replaces all these permits with one Pollutant Discharge Permit (the “New Permit”). The New Permit will not only cover all types of pollutant discharge, but also consolidate the environmental impact assessment, total pollutant control, various indicators and standards into one framework. Though the New Permit simplifies the administrative approval procedures, it also sets a higher responsibility for industrial companies.
The Regulation on the Administration of Construction Project Environmental Protection is revised (the “Revised Regulation”) by the State Council and will come into effect on October 1, 2017. The Revised Regulation reduces certain approval requirements and eliminate some overlapped approvals and pre-approvals. It sets out certain specific standards to strengthen the supervision and regulation during the course of the construction and afterwards. Besides, the public will have more opportunities to participate in this process, as the governments are required to improve their information disclosure and feedback system. Fines and penalties for non-compliance will be raised to a higher level. Relevant government entities will also be held responsible for failing to carry out their duties under the Revised Regulation.