In the wake of a series of supportive policies, participants in the distributed photovoltaic market have become increasingly optimistic and eager to explore new opportunities. In 2014, the sector was considered the first year of significant growth for China’s distributed solar power, fueled by an annual target of 8GW of installed capacity. However, despite the initial enthusiasm, challenges still persist.
At the recent Intersolar China PV Industry Forum, Wang Sicheng, a researcher at the Energy Research Institute under the National Development and Reform Commission, highlighted seven major obstacles hindering the development of distributed photovoltaics. These include low profitability, difficulty in finding suitable rooftops, financing issues, hidden transaction risks, grid connection inefficiencies, incomplete registration procedures, and the long-term stability of electricity demand. These problems continue to impede the industry's progress.
China achieved a record 12GW of installed photovoltaic capacity in 2013, becoming the world's largest market. While this marked a turning point for the broader PV industry, the distribution of this capacity remained heavily skewed. Large-scale ground-mounted projects accounted for around 70%, with only 30% coming from distributed systems. Before 2014, most distributed projects were part of the Golden Sun demonstration initiatives or integrated into buildings.
Wang noted that due to limited local electricity consumption in western regions and lagging grid infrastructure, large-scale solar farms faced curtailment rates as high as 10%. To address this, the National Energy Administration (NEA) aimed to promote distributed photovoltaics as a key growth area.
The 2014 NEA plan set a total target of 14GW, with 6GW allocated to centralized solar farms and 8GW for distributed generation. To support this, the NEA identified 81 new energy demonstration cities and 8 industrial zones. Additionally, multiple government agencies, including the Ministry of Finance and the National Development and Reform Commission, introduced policy measures to support distributed photovoltaics, such as setting a feed-in tariff of 0.42 yuan per kilowatt-hour in demonstration areas.
Despite these efforts, many challenges remain. According to Wang, developers often face funding constraints because no provincial platforms for distributed photovoltaic projects have been established yet. This makes it difficult for companies not eligible for national bank loans to secure necessary financing.
Li Junfeng, director of the National Center for Climate Change Strategic Research and International Cooperation, emphasized that a lack of transparency in cash flow and capital movement hinders banks’ ability to assess project risks accurately. This uncertainty further complicates investment decisions.
Currently, distributed photovoltaic systems operate primarily through three models: full self-consumption, self-consumption with surplus sold to the grid, and net metering. However, none of these models consistently ensure profitability. Wang conducted a test showing that even with an initial investment of 9 yuan per watt and 80% self-consumption, the internal rate of return (IRR) for commercial buildings is barely above 10%, while industrial users are typically unprofitable. Only commercial applications show some viability, but third-party investments often result in lower returns.
As a result, China’s distributed photovoltaic development remains largely “self-use†driven, with only 20% of generated electricity being sold to the grid. Moreover, building electricity prices tend to be higher than those in other sectors, adding to the financial burden.
Experts at the forum also mentioned that the NEA is actively reviewing and adjusting its support policies for distributed photovoltaics. Plans are underway to introduce benchmark pricing for such projects, and the administration will conduct on-site inspections, starting with Zhejiang, to better understand the challenges and implement necessary reforms. The goal is to meet the 2014 installation targets and accelerate the sustainable growth of distributed solar power in China.
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