Seven major problems hinder distributed photovoltaic development

With the introduction of a series of supportive policies, participants in the distributed photovoltaics market have become increasingly eager to explore this growing sector. In 2014, driven by an annual target of 8GW, many saw it as the true beginning of China’s distributed solar energy development. However, despite the optimism, industry experts point out that significant challenges still remain.

At the Intersolar China PV Industry Forum, Wang Sicheng, a researcher at the Energy Research Institute of the National Development and Reform Commission, highlighted seven key issues hindering the growth of distributed photovoltaics. These include low profitability, difficulty in finding suitable rooftops, financing barriers, hidden transaction risks, complicated grid connection procedures, incomplete registration systems, and the long-term stability of electricity demand.

In 2013, China achieved a record 12GW of installed photovoltaic capacity, making it the world's largest market. This rapid expansion, however, led to oversupply and market instability. Currently, about 70% of the country’s solar projects are large-scale ground-mounted installations, while only 30% are distributed. Before 2014, most distributed projects were part of the Golden Sun demonstration initiatives or integrated into buildings.

Wang explained that due to limited local demand in western regions and slow grid development, large-scale solar farms faced curtailment rates exceeding 10%. To address this, the National Energy Administration (NEA) has placed greater emphasis on distributed photovoltaics as a new growth driver.

The NEA set a 2014 target of 14GW for total PV installation, with 6GW allocated to large-scale power stations and 8GW from distributed generation. To support this goal, 81 new energy demonstration cities and 8 industrial zones were identified. Meanwhile, multiple government agencies, including the Ministry of Finance and the National Development and Reform Commission, introduced supportive policies, such as setting a feed-in tariff of 0.42 yuan per kilowatt-hour for demonstration areas.

Despite these efforts, several hurdles persist. According to Wang, many companies cannot access funding from the National Development Bank, so they rely on provincial platforms—yet none have been fully established. Developers face tight financial constraints, limiting project execution.

Li Junfeng, director of the National Center for Climate Change Strategic Research and International Cooperation, emphasized that lack of transparency in cash flow and capital movement makes it difficult for banks to assess risks and value projects. Additionally, the three main models of distributed generation—full self-consumption, self-use with surplus sold to the grid, and third-party investment—are often unprofitable.

Wang conducted a test showing that for commercial buildings, even with a 9 yuan/watt initial investment and 80% self-consumption, the internal rate of return (IRR) was below 10%. Industrial users typically see no profit, while commercial users may be profitable, but returns drop further when third parties invest.

As a result, current distributed photovoltaics in China remain largely “self-used,” with about 80% of generated electricity consumed on-site. Since building electricity prices are higher, there is still room for improvement.

Experts at the forum also noted that the NEA is reviewing its support policies for distributed photovoltaics, potentially introducing benchmark pricing for such projects. A field visit to Zhejiang is planned to better understand the challenges and adjust policies accordingly. The goal is to overcome the seven major obstacles and meet the 2014 installation targets effectively.