Distributed photovoltaics, once a new energy project that sparked a development craze across the country and was dubbed a "low-risk fixed-income product," is now experiencing a significant shift in direction.
Over the past two weeks, Huang Ming (a pseudonym) has been visiting peers in the distributed photovoltaic development industry across the country to resolve various confusions about distributed photovoltaics. Now, he has decided to withdraw from the related business he had previously invested in. This decision is not abrupt, as he has often felt on the verge of giving up in the past year. "If a friend wanted to introduce me to a distributed photovoltaic project three years ago, I would have welcomed it with open arms. But now, if someone is still trying to attract investment under the guise of 'the most suitable project for ordinary people to invest in new energy,' my first reaction would definitely be to dissuade them."
What prompted him to finally give up on project development was a document. In early October, the National Energy Administration issued the "Draft Measures for the Development and Construction of Distributed Photovoltaic Power Generation (征求意见稿)" (hereinafter referred to as the "New Regulation Draft"), which provides detailed management requirements for the record-filing, development and construction, grid connection, and operation management of distributed photovoltaics. One clause that has attracted strong attention from the industry is "Large-scale industrial and commercial distributed photovoltaics must choose the full self-generation and self-use mode, and the project investment entity should achieve full self-generation and self-use of electricity through the configuration of anti-reverse flow devices."
This is undoubtedly a cold shower for hesitant investors. Generally speaking, the grid-connected models for distributed photovoltaics include "full grid connection, full self-generation and self-use, and self-generation and self-use with surplus electricity grid-connected." As the difficulty of connecting to the grid increases, returning to distributed photovoltaics that are mainly self-generation and self-use, without the stable returns guaranteed by the grid, and highly dependent on the electricity demand and contract fulfillment of the enterprise itself, it is no longer possible to become a fixed-income investment from a financial perspective.
"The distributed photovoltaic market is losing its financial attributes and returning to practical electricity attributes. Although from an investment perspective, there is one less good target, but for the construction of a new type of power system as a whole, it is something that has to be done," a senior photovoltaic industry professional commented to Yicai.
"After the 'honeymoon period,' capital withdraws."
For Huang Ming and his peers, the reason affecting the confidence in distributed photovoltaic investment is that after enjoying the three-year "honeymoon" of explosive growth in installed capacity, the thresholds are becoming increasingly difficult to cross.
The normal process in the early stage of a distributed project development can be divided into four stages: development, record-filing, design and construction, and grid connection and acceptance. Among them, record-filing and grid connection are the "heavy disaster areas" that are "strangled."
In August this year, the Development and Reform Commission of Tunchang County, Hainan Province, issued a notice to temporarily suspend the record-filing of distributed photovoltaic projects, stating that it would combine the current local distributed photovoltaic power generation project construction scale with the provincial construction scale indicators to temporarily suspend the declaration and record-filing work of distributed photovoltaic projects within Tunchang County. In the same month, Qiongzhong Li Autonomous County of Hainan Province also officially announced the temporary suspension of the declaration of distributed photovoltaic projects within the county, which is to "coordinate the orderly development of distributed photovoltaics within the county, reasonably arrange the layout and construction sequence of distributed photovoltaics, and further clarify the construction and grid connection situation of distributed photovoltaic projects in our county."
"In the final analysis, it is the insufficient absorption capacity," a local energy bureau official told a Yicai reporter. It is worth noting that the areas restricting the record-filing of distributed photovoltaics are not only those that have publicly announced the temporary suspension of record-filing, but also a larger range of grid load capacity red zones, which the industry commonly refers to as "red zones."In the "Guidelines for Assessing the Grid Capacity to Accommodate Distributed Power Generation," the grid's carrying capacity is divided into three zones: red, yellow, and green. The red zone indicates that due to distributed power generation, electricity is being fed back into the grid at 220 kV and above. The assessment level is red, which means that the connection of new distributed power generation projects is suspended until the carrying capacity is effectively improved. According to incomplete statistics from First Financial Daily, as of 2023, the challenge of connecting to the grid has swept across more than 10 provinces nationwide, with nearly 400 counties successively experiencing low-voltage carrying capacity in the red zone.
"Now the capacity in central provinces such as Hebei, Henan, and Shandong is almost exhausted, with too many red zones. To make matters worse, for various reasons, financiers are now stricter with loans in Henan. Originally, as long as the project was registered and connected, the funds could be disbursed. Now, the funds can only be released after the grid connection, which also leads to many investment projects mainly financed by loans being unable to proceed because the capital advance is too large," said Fan Huili, founder of Henan Qianjia Bang Energy Technology Co., Ltd., to a reporter from First Financial Daily.
Faced with the "sharp turn" of difficulties in filing for distributed photovoltaic projects in many places, the market has keenly sensed the risks involved. Several industry insiders told reporters that since half a year ago, many financiers have successively withdrawn, and "banks on the roof" are far from the previous fervor.
"Many people originally used the characteristics of finance to invest in distributed photovoltaics, first by leveraging and second by cash flow, to quickly take the company public. However, when the financial attributes are gradually removed, distributed photovoltaics face both power rationing and time adjustment. The grid no longer fully purchases but guarantees the purchase, and participating in the electricity market transactions leads to a reduction in photovoltaic power generation, making the electricity price revenue extremely unstable. In the past six months, most of the financiers in Henan who originally wanted to invest in distributed photovoltaics have withdrawn. The people who are still in the industry are also struggling to survive in the cracks," Fan Huili said.
The waning enthusiasm for distributed photovoltaic investment is related to both the tightening of development policies and the decrease in motivation for central and state-owned enterprises to participate.
Data released by the National Energy Administration shows that as of July this year, the national cumulative power generation installation capacity is about 310 billion kilowatts, of which the photovoltaic power generation installation capacity is about 74 billion kilowatts, and the wind power installation capacity is about 47 billion kilowatts. The combined installation of wind power and photovoltaics reaches 121 billion kilowatts. This means that China has achieved the goal of 120 billion kilowatts of total wind and photovoltaic power generation installation by 2030, about six and a half years ahead of schedule.
A senior photovoltaic industry insider told reporters that currently, most central and state-owned enterprises have completed their distributed photovoltaic development tasks ahead of schedule. The focus of the next work will be more on stable revenue projects such as centralized wind farms and pumped storage energy. "Distributed photovoltaic development originally involves different types of electricity users, and the communication cost is high, which is not very suitable for central and state-owned enterprises to do. Now that the targets have been met, there is even less reason to make things difficult for themselves; some signed projects are not being carried out now."
With grid connection restrictions, where is the way forward?
Since most distributed photovoltaic projects are stuck at the filing and grid connection stages, more and more practitioners are beginning to explore new paths that jump out of the grid and use electricity generated by themselves.
"Our distributed photovoltaic projects are mainly for self-generation and self-use, focusing on industrial and commercial users. The initial investment return situation was very good, and the contracts were signed smoothly. However, a point that is 'heart attack' in practice is that when a company operates poorly or goes bankrupt, the electricity bill cannot be collected, and the original investment model becomes completely invalid, which is almost unpredictable in the early stage," said Huang Ming, who has been severely damaged by investment "mines" after many companies defaulted during the epidemic.Huang Ming's predicament is not an isolated case, but a widespread and thorny dilemma faced by many investors. "The commercial and industrial distributed photovoltaic (PV) that is mainly based on self-generation and self-use is overly dependent on the enterprise's own operations and electricity usage, hence the returns for investors are unstable, and the industry does not have a particularly comprehensive solution to this issue. What can be suggested is that after the investment in the power station is recouped, the investors should promptly give the power station to the owner and withdraw, which may be a more realistic way to avoid risks," said Zhang Xiaobin, Secretary-General of the Shandong Solar Energy Industry Association, in his analysis to First Financial Daily.
Fan Huili also believes that unlike in the past where the capital providers were the dominant force, in the future, the investment model of distributed photovoltaics led by industrial and commercial electricity users will become increasingly common. These types of enterprises usually have characteristics such as having a large daytime electricity demand, a high degree of matching between the electricity usage curve and photovoltaics, and an objective need for product carbon footprint or green electricity. "There will be a clear difference in the investment psychology of different entities. For example, under the drive of capital, it naturally hopes that the scale of investment is as large as possible. However, in projects led by electricity users, they will consider their actual electricity needs, determine the quantity based on demand, and usually install less. This will indeed reduce the burden on the power grid."
It is worth noting that the management method, which is still in the stage of soliciting opinions, has not yet reached a definitive conclusion, and the industry also holds different views on whether large-scale distributed photovoltaics can be connected to the grid.
Peng Peng, Secretary-General of the China New Energy Power Investment and Financing Alliance, believes that large-scale industrial and commercial distributed photovoltaics should also retain the right to sell electricity to the grid. "No electricity user can guarantee that they can stably and continuously use electricity for 25 years (the service life of a photovoltaic power station), and the power grid is the fundamental guarantee for the project's returns. Therefore, we believe that the power grid can establish a flexible pricing system, can accept market-based electricity prices, but should not completely close the door to selling electricity to the grid. This is also in line with the relevant provisions of the Renewable Energy Law regarding the purchase of electricity at a guaranteed price and quantity."
Beyond the debate on whether distributed photovoltaics can be connected to the grid, a "compromise" method is also being scheduled in many places across the country, that is, to configure energy storage.
This year, Henan, Jiangsu, Zhejiang, Shandong, Hebei, Hunan, and other places have introduced specific requirements for distributed photovoltaic projects to be equipped with energy storage, with the storage ratio ranging from 5% to 30% of the installed capacity. Taking Henan as an example, the local requirements vary according to the assessment results of the load-bearing capacity of different substations; yellow areas need to be equipped with 15%×2 hours of storage, and red areas need to be equipped with 20%×2 hours of storage. In Zaozhuang and Dezhou of Shandong, distributed photovoltaic projects are required to have a storage configuration ratio of no less than 15%.
First Financial Daily reporters have noticed that the description of energy storage in many places has shifted from encouragement to mandatory full promotion. Under the contradiction between the explosive development of distributed photovoltaics and the insufficient load-bearing capacity of the power grid, energy storage has become a middle solution of "choosing the lesser of two evils." Although this policy also faces the controversy of increasing investment burden and low usage rate of energy storage, the consensus is that distributed photovoltaics, which have rapidly grown, are now the time to bear more of the system operation costs.