On November 4, 2024, the twelfth session of the 14th National People's Congress Standing Committee heard the report on the review results of the "Energy Law of the People's Republic of China (Draft)" by the National People's Congress Constitution and Law Committee, and on November 8, 2024, it reviewed and passed the "Energy Law of the People's Republic of China" (hereinafter referred to as the Energy Law), which will officially come into effect on January 1, 2025.
I.Energy Legal System
The Energy Law provides regulations on various aspects, including the definition of energy, energy planning, development and utilization of different types of energy, energy market systems, energy reserves and emergencies, and energy technology innovation. Considering that China already has legislation related to energy, such as the "Renewable Energy Law," "Electric Power Law," "Coal Law," "Nuclear Safety Law," and "Energy Conservation Law," the position of the Energy Law within the energy legal system and its relationship with other relevant legislation are noteworthy.
We believe that the Energy Law and the aforementioned laws are all laws passed by the Standing Committee of the National People's Congress and have the same legal effect. Although the Renewable Energy Law, Electric Power Law, and other existing laws are special laws within their scope of adjustment, if the Energy Law updates or imposes stricter requirements on the content of the aforementioned laws, the principle of applying the later law over the earlier one should be followed. For matters not regulated by the Energy Law, the existing laws shall continue to be implemented.
II. Energy Classification System
According to the definition in the Energy Law, energy refers to various resources that provide useful energy directly or through processing and conversion, including coal, petroleum, natural gas, nuclear energy, hydro energy, wind energy, solar energy, biomass energy, geothermal energy, ocean energy, and electricity, heat, hydrogen energy, etc. In the Energy Law, energy is classified into fossil energy, non-fossil energy, and other forms of energy (electricity, heat, hydrogen energy). Fossil energy includes coal, petroleum, natural gas, etc., which are energy sources formed from ancient plants and animal fossils through geological processes. Non-fossil energy includes nuclear energy and renewable energy. Nuclear energy refers to energy released through nuclear reactions, while renewable energy refers to energy that can be continuously supplemented and regenerated through natural processes in a relatively short period, including wind energy, solar energy, hydro energy, biomass energy, geothermal energy, ocean energy, etc. Biomass energy specifically refers to energy transformed from plants and urban and rural organic waste through biological, chemical, or physical processes. The Energy Law specifically lists electricity, heat, and hydrogen energy as components of energy and defines hydrogen energy as energy released through chemical reactions involving hydrogen as an energy carrier.
It is worth noting that although nuclear energy can also be continuously supplemented in a short period, nuclear energy does not belong to renewable energy, and hydrogen energy is listed separately from nuclear energy. The current hydrogen energy should refer to the combustion of hydrogen and does not include energy produced by nuclear fusion.
III. Renewable Energy
In the general provisions of the Energy Law, it is particularly emphasized to implement a new energy security strategy that promotes energy consumption, supply, technology, and system revolutions, as well as comprehensive international cooperation. The strategy insists on a domestic focus, diversified guarantees, priority for conservation, and green development, aiming to accelerate the construction of a clean, low-carbon, and safe and efficient new energy system. Green energy is a significant highlight of the Energy Law, providing many supplements to the Renewable Energy Law, which has not been revised for 15 years since 2009.
It should be noted that the Renewable Energy Law stipulated that the state implements a full guarantee system for the purchase of renewable energy generation, requiring grid companies to fully purchase the on-grid electricity of renewable energy generation projects that meet grid connection technical standards within their grid coverage. The difference between the on-grid electricity tariff of renewable energy and the benchmark electricity tariff is compensated through the renewable energy electricity tariff surcharge. At the same time, the law also imposes strict compensation liability on grid companies. However, due to well-known reasons, this provision has not been implemented in practice in a timely manner. With the cost reduction brought about by the development of the renewable energy industry, the electricity tariff of renewable energy generation projects has declined, and the financial models for new projects basically no longer consider the factor of renewable energy electricity tariff surcharge compensation.
In contrast, the Energy Law specifically stipulates on the basis of the obligations set for grid companies in the Renewable Energy Law, "The state improves the renewable energy power consumption guarantee mechanism. Power supply companies, electricity selling companies, relevant electricity users, and enterprises using self-generated power plants shall bear the responsibility of consuming renewable energy power generation according to national regulations." This provision may imply that future reforms to the on-grid electricity tariff and user-side electricity tariff systems are anticipated.
Additionally, for renewable energy, the Energy Law explicitly incorporates the state's implementation of a green energy consumption promotion mechanism through renewable energy green electricity certificates and other systems into the law, indicating that the green certificate trading system, CCER systems and other systems will continue to exist stably in the long term and constitute an essential part of the financial models of energy industry-related enterprises.
The Energy Law also provides good news for the renewable energy industry with its provisions on building a new type of power system, strengthening the coordinated construction of power sources and grids, promoting the intelligent transformation of grid infrastructure, and smart micro-grid construction, enhancing the grid's ability to accept, allocate, and regulate renewable energy.
IV. Energy Security, Energy Reserves, and Innovation
Although the Petroleum Reserves Regulations and the Emergency Response Law have mentioned the concept of energy reserves before, the Energy Law is the first to propose the overall concept and systematic arrangements for energy reserves in the form of law, proposing a combination of government and enterprise reserves, and the overall planning of physical reserves, production capacity reserves, and mineral site reserves. Government reserves include central government reserves and local government reserves, while enterprise reserves include enterprise social responsibility reserves and other enterprise production and operation stocks.
Energy reserves and energy diversification and decentralization are requirements for energy security. Renewable energy is an important part of energy security, and many renewable energy projects are also related to distributed, energy storage, off-grid, and micro-grid systems. The Energy Law proposes that the state should accelerate the construction of a new type of power system, strengthen the coordinated construction of power sources and grids, promote the intelligent transformation of grid infrastructure, and smart micro-grid construction in terms of hardware. In terms of business models, it encourages the development of distributed energy and multi-energy complementary, multi-energy joint supply comprehensive energy services, as well as contract energy management and other businesses. In terms of innovation requirements, it encourages and supports the research, development, demonstration, promotion, application, and industrialization of basic, key, and cutting-edge major technologies, equipment, and related new materials in the fields of energy resource exploration and development, clean and efficient use of fossil energy, renewable energy development and utilization, safe use of nuclear energy, hydrogen energy development and utilization, and energy storage and conservation.
On the one hand, these provisions are beneficial to the development of the renewable energy industry. On the other hand, they also indicate that energy companies need to accelerate the transformation from capital-intensive to knowledge-intensive enterprises, and the demand for intellectual property law by energy companies cannot be overstated.
V. Energy International Cooperation
The Energy Law proposes a new energy security strategy that strengthens international cooperation in all aspects, clearly stating that the state actively promotes international investment and trade cooperation in the energy field and effectively prevents and responds to international energy market risks. Article 78 stipulates that if any country or region takes discriminatory prohibitions, restrictions, or other similar measures against the People's Republic of China in the renewable energy industry or other energy fields, the People's Republic of China can take corresponding measures against that country or region according to the actual situation. Article 79 states that organizations and individuals outside the People's Republic of China who commit acts that endanger the national energy security of the People's Republic of China shall be held legally responsible.
In addition to mentioning international cooperation from the perspective of energy security, the Energy Law also stipulates the priority application of international conventions that China has joined. Article 77 stipulates: If there are different provisions in the international treaties related to energy that the People's Republic of China has concluded or participated in compared with this law, the provisions of the international treaties shall prevail, except for the clauses that the People's Republic of China has reserved. However, it remains to be further studied whether this provision means that the relevant international conventions can be directly applied in China or still need to go through a special transformation procedure by the National People's Congress before they can be applied.
