WORKING PAPER
DISTRIBUTED ENERGY IN CHINA:
REVIEW AND PERSPECTIVE 2020–2025
ERIC MARTINOT, MIAO HONG, HU RUNQING, ZHANG MOFAN, YUAN MIN
EXECUTIVE SUMMARY
Highlights CONTENTS
Executive Summary ......... 1
Distributed energy is one of the cornerstones of
Introduction ............. 3
China’s energy transition. Yet distributed energy is
Policy History and Outlook ...... 7
still drastically underdeveloped relative to its potential
in China. Market Drivers and Use Cases—History and Outlook .... 8
Market Barriers—History and Outlook .... 9
In China, over the past 15 years, policies for distrib- Distributed Energy—History and Outlook ....... 11
uted energy have greatly evolved and expanded. Dur- Economics of Distributed versus Centralized Energy
ing the period 2020–25, current policy supports willSolutions—History and Outlook ...... 13
be phased out, and distributed energy will gravitateRecommendations .......... 14
toward market-oriented and competitive models. New Conclusion—China Distributed Energy Outlook .... 16
policies will indirectly support distributed energy,Endnotes .......... 18
remove barriers, and provide a favorable environment
References .............. 18
for distributed energy to continue to grow.
A variety of market drivers have emerged in recent Working Papers contain preliminary research,
years, beyond cost-subsidy policies. Very specific dis- analysis, findings, and recommendations. They are
tributed energy “use cases” are benefiting from thesecirculated to stimulate timely discussion and critical
market drivers. feedback and to influence ongoing debate on emerging
issues. Most working papers are eventually published
Use cases for distributed energy will continue to grow in another form and their content may be revised.
for integrated microgrids, energy storage, electric
vehicle charging infrastructure, and larger volumes of Suggested Citation: Martinot, Eric, Miao Hong,
small-scale projects for industrial and commercial end Hu Runqing, Zhang Mofan, and Yuan Min. 2020.
users. “Distributed Energy in China: Review and Perspective
2020–2025.” Working Paper. World Resources Institute,
In supporting the acceleration and scale-up of distrib- Beijing. Available online at wri/working_
uted energy, a variety of recommended actions are paper/2020/10/DISTRIBUTED_ENERGY_IN_CHINA_
available to government agencies, industry, project REVIEW_AND_PERSPECTIVE_2020_2025_CN.
developers and financiers, foundations and other pub-
lic funders, and research institutions.
WORKING PAPER | September 2020 | 1Context expected to take center stage in the coming decade.
Distributed energy (DE) differs from centralized energy Existing forms of policy support are ending, while new
in several respects. It has the advantages of high energy market-based policies are emerging that will indirectly
efficiency because it utilizes local renewable resources,support distributed energy, remove barriers, and pro-
and it is located closer to end users, thus avoiding highvide a favorable environment for distributed energy to
transmission costs. It is an effective supplement to continue to grow.
centralized energy systems.
In parallel with policy evolution, there is an emerging
Distributed energy is one of the essential characteristics new generation of use cases for distributed energy in
of China’s energy transition. Yet, there are still many China.
potential scenarios for DE development in China. Despite
large and growing markets for some distributed energy Most of the barriers discussed in this paper will re-
applications, only a small fraction of the existing economic main during the period 2020–25.
potential has been realized. Existing policies, technology
Costs will continue to decline over the next five years.
applications, business models, financing sources, and
stakeholder involvement have scarcely begun to address To support acceleration and scale-up of distributed
the true potential or capture the true long-term value of energy, a variety of recommended actions are avail-
distributed energy. able to government agencies, industry, project devel-
opers and financiers, foundations and other public
About This Working Paper funders, and research institutions.
This paper surveys the future of distributed energy in China
for the coming period 2020–25, based on the past and Recommendations
current market and policy situation, potential, challenges,
and evolving and emerging use cases (i.e., technologyBased on this analysis, along with the collective knowledge
applications and business models) for distributed and work of the authors, we make the following
energy. The study provides investors, strategy advisers, recommendations to promote and accelerate the growth of
policymakers, and foundations with a concise background distributed energy in China.
and perspective relevant to decisions and strategies for
promoting distributed energy in China in the coming years. For government agencies:
Develop market-based mechanisms and rules that
Approach and Objectives of the Paper allow local energy trading and chart a pathway
Use cases for distributed energy are an effective way toto enable distributed energy to participants in
portray its real potential in China to contribute to thefuture wholesale markets and direct sales to other
country’s climate and clean energy goals. A use case is customers, including both generation and demand-
a particular technology application and configuration response.
that is profitable within the context of a specific business
Promote a simplified grid-connection process for
model and enabling environment (including policies
distributed photovoltaic systems to all distributed
and institutional arrangements). Questions we are
renewable energy projects.
trying to answer are, Where do we stand with regard to
achieving long-term distributed energy potential in China, Consider developing local markets for distributed
considering which use cases have already demonstrated heating and cooling, possibly including local feed-in
scale-up potential and which others remain untested and tariffs or other support policies for renewable energy-
unproven but show promise? How can we foster greater based heating.
scale-up of both proven and potential use cases?
Explore more distributed solar applications that com-
Key Findings bine with new types of infrastructure, and make such
applications practical for commercial projects such as
China will develop many new innovations in clean parking structures, roads and highways, green spaces,
energy, and, among them, distributed energy isfencing, and ground-level building peripheries.
2 | DISTRIBUTED ENERGY IN CHINA: REVIEW AND PERSPECTIVE 2020–2025
Establish a national guarantee fund for innovative dis- indicators beyond simple capacity (megawatts [MW])
tributed energy projects that pilot new business models are possible and could be used to explicitly measure
and technology configurations, with detailed investiga- and define outcomes for distributed energy. They
tion and public dissemination of results and metrics.include strategic-level indicators, policy indicators,
and proof-of-concept and pilot project metrics of
success and viability.
For industry, project developers, and financiers:
Innovate new business and finance models so results Develop a variety of research agendas that are needed
can be learned and shared within the industry.for distributed energy at the present time.
Provide higher-quality supervision for new projects.
Identify and market third-party energy service company INTRODUCTION
(ESCO) services to new types of potential customers.
Distributed energy (DE) is one of the cornerstones of
Innovate standardized and accepted forms of project China’s energy transition. Yet distributed energy is still
finance, with project assets used as collateral. drastically underdeveloped relative to its potential in
China. Despite large and growing markets for some
Develop new forms of third-party risk-sharing. distributed energy applications, only a small fraction
of the existing economic potential has been realized,
For foundations and other public funders:and existing policies, technology applications, business
models, financing sources, and stakeholder involvement
Fund the development and piloting of new businesshave barely begun to address the true potential and
and finance models that are not yet widely adoptedcapture the long-term value of distributed energy.
but show great potential for scale-up.
Distributed energy differs from centralized energy in
Fund local market assessment studies that allow aseveral respects. It has the advantages of high energy
locality to measure market maturation for distributed efficiency, safety and reliability, low overall cost, low
energy at the local level, including business outlooks loss, and flexible operation. It is an effective supplement
and potential sites and development opportunities.to centralized energy systems (IEA 2017). Distributed
energy in China1 can be categorized in terms of two carbon
Provide capacity building for enterprises and financiers
emission types: natural gas-fired combined cooling,
to understand opportunities, risks, and business
heating, and power (CCHP), which is nonrenewable and
models, and for financiers to develop new lending
produces carbon emissions, and distributed renewable
platforms and programs for distributed energy.
energy technologies such as solar, wind, biomass,
Identify, consult with, educate, and facilitate the hydro energy, and geothermal energy, which can be
activities of a wide range of relevant stakeholders. carbon-neutral. Renewables can fuel distributed energy
development and application, supplying power, heat,
Develop unique and effective tools for decision- synthetic gas, motive power, and other end-use energy
making and dissemination of experience, suchneeds. This working paper focuses only on distributed
that pilot projects and models are more likely to be renewable energy.
replicated.
Although distributed energy does not have an agreed-
Create coalitions of organizations including industry, upon global standard definition, the characteristics of
professional associations, research institutes, and distributed energy are uniformly understood across
planners, who agree to work together to implementcountries. The main characteristics of DE encompass three
the activities listed above. aspects. First, the scale of distributed power generation
projects is small, usually less than one megawatt (MW).
Second, the distributed power generation source is
For research institutions:
connected to the distribution network (low-voltage grid or
Develop ways to measure progress and track scale-local heating network), close to the end-use energy load
up and acceleration. Various local- or national-level (demand), and the power generated is mainly or partly for
WORKING PAPER | September 2020 | 3local consumption. Third, a distributed energy project can and application focus of this paper is on the distributed
include and integrate a range of supply- and demand-side application of solar PV.
technologies such as energy storage, energy management
and demand response, and smart controls—not just powerChina has been the world’s largest PV market since 2013.
generation and heating supply-side technologies.New installed PV capacity in China keeps increasing
(Figure 1) in response to the rapid fall in PV model prices
Distributed energy, as a local energy supply system, avoids and capital expenditure in terms of PV project capacity
the negative impacts of long-distance energy transmission (Figure 2), as well as due to incentive policies in the form
(such as line loss and environmental impacts from of feed-in tariffs (FITs) and subsidies (Table 1). Before
power lines). Distributed energy offers users a reliable, 2016, large-scale PV power stations dominated the PV
economical, and stable power supply, and can meet market in China.
multipurpose energy demands. Historically, distributed
solar photovoltaic (PV) systems and small hydropower Distributed PV energy began to develop very quickly in
generation units have solved the problem of energy supply 2016, driven by incentive subsidy policy, rapidly falling
in remote and unelectrified rural areas. costs, and simplified management procedures. The
subsidy for distributed PV remained the same as in 2013,
At present, the most mature technology application iswhile the FIT for large-scale PV projects was reduced by
PV power generation. In the true sense of multi-energybetween 0.15 and 0.25 RMB/kilowatt hours (kWh). The
complementarity, there are still very few applicationsdistributed investment in China reached a peak in 2017,
that can provide a range of energy products (i.e., with over US$45 billion in annual investment flowing
electricity, cooling, heating, steam, etc.) and integrated to mostly industrial and commercial megawatt-scale
and optimized energy services. Therefore, the main policy solar PV applications. That year, 19.4 gigawatts (GW) of
Figure 1 | China’s Annual Installed Solar Photovoltaic Capacity, 2013–2019 (Gigawatts)
Large-scale Distributed
60
52.9
50
44.3
19.4
40
34.5
21.0
4.230.1
30
12.2
20
33.5
15.1 30.3
11.0 10.6 1.4
0.4 23.3
10 2.0 17.9
13.7
10.6 8.6
0
2013 2014 2015 2016 2017 2018 2019
Source: Energy Resources Institute, NDRC, with data from NEA 2020.
4 | DISTRIBUTED ENERGY IN CHINA: REVIEW AND PERSPECTIVE 2020–2025
Figure 2 | Photovoltaic Model and Photovoltaic Power Generation Cost, 2007–2020 (RMB/Wp)
PV Model (RMB/Wp)CapEx (RMB/Wp)
70
60.0
60
50.0
50
40 36.0 35.0
30.0
30 25.0
20 17.0
19.0 12.0
9.0 8.5 8.0
10 7.5 6.7
5.0 4.2 3.8
9.7 7.9
6.0 4.7
0 4.0 3.4 3.1 2.7 2.2 1.8 1.5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Note: Wp = Watt peak; CapEx = Capital expenditure.
Source: Energy Resources Institute, NDRC 2020.
Table 1 | China’s Feed-in Tariff and Subsidy for Photovoltaic Projects, 2013–2020(RMB/kWh, including tax)
2018
Types Year 2013–2015 2016 2017 2019 2020
Before May 31 After June 1
I Zone 0.90 0.80 0.65 0.55 0.5 0.40 0.35
FIT for
large-scale II Zone0.95 0.88 0.75 0.65 0.6 0.45 0.40
PV
III Zone1.000.98 0.85 0.75 0.7 0.55 0.49
Industrial and commercial
Same as large-scale PV
(wholesale)
Subsidy for
distributed Industrial and commercial 0.420.42 0.42
0.10 0.05
PV(self-consumption and sale to grid)
0.37 0.32
Household0.18 0.08
Note: FIT = Feed-in tariff; PV = Photovoltaic.
Source: Energy Resources Institute, NDRC 2020.
WORKING PAPER | September 2020 | 5