China's distributed generation sector has not yet developed a mature business model, but the exploration process has never ceased. The Golden Sun subsidy program, which is no longer in effect, was an experimental effort that revealed the flaws of equipment-side subsidies. In response, China began to study the subsidy models used in Europe and the U.S., shifting its focus to subsidizing power generation rather than equipment. This change helped eliminate the risk of fraudulent claims for equipment that did not generate electricity. Overall, this marked a significant step forward in China’s efforts to develop a viable business model for distributed energy subsidies, proving that innovations based on terminal electricity pricing are indeed feasible.
Although detailed regulations for the subsidized business model of distributed generation have not been fully established, after extensive discussions during the first half of the year, the National Energy Administration issued the "Notice on Launching a Distributed PV Generation Application Demonstration Area" in the second half of the year. Xinneng [2013] No. 296 approved the construction of the first batch of distributed photovoltaic demonstration zones across 18 industrial parks, offering a subsidy of 0.42 yuan per kWh. This was higher than the proposed 0.35 yuan per kWh in the draft of the “Consummation of Photovoltaic Power Pricing Policy†announced by the Development and Reform Commission’s Price Division earlier that year.
The 0.42 yuan per kWh subsidy significantly improved the return on investment for these newly approved projects. For instance, within the Zhongguancun Haidian Park in Beijing, engineers integrated local industrial electricity consumption data with average daily sunshine hours and electricity generation. With the incentive of 0.42 yuan/kWh, the project’s investment could be recouped within three years. This development greatly boosted enthusiasm for constructing distributed photovoltaic demonstration areas across the country.
However, the 0.42 yuan/kWh tariff subsidy model is still limited to the 18 approved industrial parks and has not been widely implemented as a standard fixed subsidy. This is due to the imbalance in electricity prices among different consumer groups in China. Industrial and commercial electricity rates range from 0.8 to 1.4 yuan/kWh, while residential rates are between 0.3 and 0.5 yuan/kWh. As a result, fixed-rate subsidies lead to uneven returns—higher income for users with high electricity prices and longer payback periods for those with lower rates. This disparity complicates investment decisions for photovoltaic projects.
According to Wang Sicheng, a researcher at the National Development and Reform Commission’s New Energy Research Institute, only industrial electricity priced above 0.8 yuan/kWh can yield a profit when considering a photovoltaic generation cost of 1.2 yuan/kWh. This highlights the challenge of finding a balanced subsidy level and settlement method for the “spontaneous self-use and surplus power upload†model.
Due to the uneven electricity pricing structure, China has struggled to find a sustainable balance in its subsidy system. Fixed tariffs are straightforward and easy to implement, but they are directly influenced by user-specific electricity prices. That’s why the current policy encourages the development of distributed photovoltaic demonstration zones primarily in industrial parks. These areas benefit from higher electricity prices and greater load capacity, making them ideal for on-site solar absorption and aligning with the state’s push for self-consumption.
In summary, China’s distributed generation sector must begin with pilot projects in industrial parks, gradually exploring and refining suitable business models. For residential applications, further research and learning from past demonstration projects will be essential before a scalable solution can be developed.
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