On October 9, the National Energy Administration of China began soliciting public opinions on the Distributed Photovoltaic Management Measures, which will be effective for five years. This draft introduces two new requirements: first, large industrial and commercial users must consume self-generated power; second, even for projects that are fully grid-connected or where surplus self-generated electricity is sold back to the grid, they must fairly participate in market-based transactions. We believe this policy may affect the stability of existing projects and place some negative pressure on investment decisions for new projects. However, this policy has not yet been officially implemented, and for key issues such as the differentiation between new and old projects and guaranteed pricing and volume, the draft only proposes that local governments should make flexible decisions based on local conditions.
Therefore, we suggest that investors closely monitor the specific details of market-based transactions and the potential accompanying policies. At the same time, we believe that high-quality distributed photovoltaic projects in areas with low power consumption pressure and high electricity price affordability still hold investment value.
In the draft management measures, distributed photovoltaic projects are clearly categorized into four types, each with a well-defined description. These four types are:
(1) residential household (for self-owned homes, with a voltage level not exceeding 380V)；
(2) non-residential household (projects built on residential property, with a voltage level not exceeding 10kV and installed capacity not exceeding 6MW)；
(3) general industrial and commercial (projects built on public institutions or industrial and commercial buildings, with a voltage level of 10kV or below and an installed capacity not exceeding 6MW)；
(4) large industrial and commercial (not directly connected to the public grid, with a voltage level of 35kV and installed capacity up to 20MW, or a voltage level of 110kV and installed capacity up to 50MW).
Different types of distributed photovoltaic projects will have distinct regulations in terms of grid connection, market-based transactions, and project registration.
As distributed photovoltaic power enters the market, large industrial and commercial users are required to adopt a self-consumption model. In addition to the fully grid-connected and surplus self-generation models, the draft introduces the concept of full self-consumption. Residential distributed PV is the most flexible, allowing any of these modes; general industrial and commercial users have fewer options, excluding fully grid-connected models; and large industrial and commercial users are subject to the strictest rules, only allowing full self-consumption and requiring anti-reverse flow devices. We predict that this may impact the willingness of some industries with low self-consumption rates, such as large warehousing, to install PV systems.
Additionally, the draft clearly stipulates for the first time that distributed photovoltaic projects using full grid connection or surplus self-generation must participate in market-based transactions, including various forms of energy and ancillary services. Projects that are registered in the national poverty alleviation program can also issue green certificates and engage in transactions. Given the increasing fluctuations in distributed photovoltaic electricity prices, project development may become stricter to reduce the risk of lower-than-expected returns after grid connection.
The draft also sets the goal for distributed photovoltaic projects to achieve “observable, measurable, adjustable, and controllable” outcomes. To this end, grid companies will strengthen the planning of active distribution networks and establish dispatching mechanisms, upgrading the public grid to enhance capacity and scheduling abilities. Distributed photovoltaic investors will be responsible for upgrading internal user networks, including convergence facilities and grid-connection infrastructure. Additionally, existing projects may also need equipment upgrades and retrofits. We believe that distributed photovoltaic dispatching will face dual challenges: on one hand, distributed photovoltaic systems will be allowed to participate in dispatching through forms like microgrids, integrated energy systems, and virtual power plants, testing project operation and maintenance capabilities; on the other hand, in times of low system load, distributed photovoltaic systems connected to distribution grids may reverse electricity flow into transmission networks, posing challenges to grid dispatching mechanisms.
Regarding investment and registration, the entity that invests in distributed photovoltaic projects is responsible for registering the project, following the principle of “whoever invests, registers.” Residential household projects can be registered by either the grid company on behalf of the owner or by the owner themselves, while the other three types must be registered by the investment entity. Distributed photovoltaic projects are exempt from requiring an electricity business license, but the investment (registration) entity must sign a power purchase agreement with the grid company before the project becomes operational. The draft also prohibits local authorities from controlling rooftop development resources through exclusive franchises, which is expected to encourage various investors to develop and construct distributed photovoltaic projects on an equal footing through market-based mechanisms. We believe that this policy may reduce development costs for distributed photovoltaic projects, and some intermediaries that rely on rooftop resources for profit may gradually exit the market.
In conclusion, while the introduction of the Distributed Photovoltaic Management Measures will bring a series of policy changes and market challenges, high-quality projects in areas with low consumption pressure and high electricity price affordability still hold investment value. Investors should closely follow policy developments and market changes to formulate sound investment strategies.
Source：https://mp.weixin.qq.com/s/i3VZ-IGWBgzFrN_NSRvUQg
