**Abstract**
Starting in September, China’s new energy sector is entering a new phase. Recently, the National Development and Reform Commission (NDRC) issued several documents clarifying the national subsidy standard for distributed photovoltaic (PV) feed-in tariffs at 0.42 yuan per kWh. This rate is consistent with the one applied in the first batch of demonstration areas. Compared to the previous draft proposal of 0.35 yuan/kWh, this increase of 20% has brought renewed hope to the solar industry, which had been facing a "cold winter" due to overcapacity and low demand.
"The national PV electricity price is around 1 yuan per kilowatt-hour, while thermal power costs between 0.4 and 0.5 yuan," said Lin Boqiang, director of the China Energy Economic Research Center at Xiamen University. "After subsidies, the market competitiveness of solar power will significantly improve."
In addition, the NDRC categorized centralized PV plants into three resource zones based on local solar potential and construction costs, each with different grid-connected tariff standards. The lowest tariff is 0.9 yuan/kWh, up from 0.75 yuan/kWh in the earlier draft, marking a 12% increase. This move is seen as favorable for both equipment manufacturers and downstream investors.
**Three Major Regional Policy Barriers**
The NDRC divided the country into three solar resource zones, setting corresponding grid prices for PV projects. These rates are higher than the benchmark prices of local coal-fired power plants and are subsidized by the renewable energy fund.
Class I zones, mainly located in regions like Ningxia, Gansu, Xinjiang, and Inner Mongolia, have a tariff of 0.90 yuan/kWh. Class II zones are set at 0.95 yuan/kWh, while Class III zones are at 1.0 yuan/kWh. Han Xiaoping, chief information officer at China Energy Network, explained that these classifications are based on China's geographical conditions, which naturally divide into three major regions from west to east.
According to the policy, the new tariff system applies to projects approved after September 1st this year. For projects operational from January 1, 2014, they can enjoy central government subsidies. For non-financially supported distributed PV projects, the benchmark tariff and subsidy period is expected to last 20 years — a longer term than previously anticipated.
Industry experts believe this 20-year period could boost domestic PV deployment, as it provides long-term stability. Previously, many thought the subsidy duration might be limited to 10 years.
However, Lin Boqiang pointed out that while the policy sets a clear standard, there are still many details to be clarified, such as the technical requirements for grid connection and installation procedures.
**0.42 Yuan Subsidy Still Needs Observation**
For distributed PV projects, the subsidy is calculated based on power generation, at 0.42 yuan/kWh. This rate was first introduced in the first demonstration zone and has since been expanded nationwide. Meng Xianyu, vice chairman of the China Renewable Energy Society, noted that if this rate is implemented broadly, it could become the standard.
Compared to the earlier exposure draft of 0.35 yuan/kWh, the 0.42 yuan/kWh rate represents a 20% increase, exceeding expectations. However, Lin Boqiang also raised concerns: "With the cost of solar installations dropping due to technological progress and overcapacity, what happens when production stabilizes? Will prices rise again?"
He emphasized that while core barriers for distributed PV have been addressed, the effectiveness of the 0.42 yuan/kWh subsidy still needs to be monitored.
Another key issue is the grid's obligation to purchase surplus electricity generated by distributed PV systems at the local coal-fired benchmark price. Since most of these systems are installed by households, the balance between input and output remains a critical concern.
**Power Station Construction Expected to Accelerate**
After two years of stagnation, the Chinese PV industry is finally seeing signs of recovery. According to plans, by 2015, China’s total PV capacity is expected to exceed 35GW. In the first half of the year, the commercial ecosystem for PV installations has improved, with component prices stabilizing or even rising slightly.
Industry insiders predict that the acceleration of returns will drive faster power station construction, leading to a surge in project development. It is estimated that China’s PV capacity will reach 8.5GW in 2013, up 88% from 4.5GW in 2012. By 2014, the installed capacity is expected to surpass 10GW.
With grid connection and tariff subsidies now supported by policy, industry confidence has been restored, and investment momentum is building.
Looking ahead, the VAT for PV power plant projects is expected to be clarified. Currently, the VAT for operators is 17%. If it is reduced by 8.5 percentage points, the return rate for power stations could increase by 1-2%, directly benefiting investors.
Meng Xianyu believes that the pricing mechanism, regional tariffs, distributed PV rates, and additional renewable energy incentives are all interconnected. Whether the industry can develop healthily depends largely on how well the grid system is coordinated.
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