**Abstract**
Starting in September, China’s new energy sector is set to enter 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 the same as the one implemented in the first batch of demonstration areas. Compared to the previously proposed 0.35 yuan/kWh in the exposure draft, this represents a 20% increase, which has brought some relief to the struggling solar industry.
"The national PV electricity price is around 1 yuan per kilowatt-hour, while thermal power is between 0.4 and 0.5 yuan," said Lin Boqiang, director of the China Energy Economic Research Center at Xiamen University. "After subsidies, the competitiveness of solar power in the market will significantly improve."
In addition, centralized PV power plants will be categorized into three resource zones based on local solar potential and construction costs, each with different grid-connected electricity prices. The lowest tariff is 0.9 yuan/kWh, up 12% from the previous 0.75 yuan/kWh, which is expected to benefit equipment manufacturers and downstream investors.
**Three Major Regional Policy Barriers**
The NDRC has divided the country into three solar resource zones, setting corresponding grid tariffs for PV projects. These tariffs are higher than the benchmark prices of local coal-fired power plants and are subsidized by the renewable energy fund. Class I areas, mainly in Ningxia, Gansu, Xinjiang, and Inner Mongolia, have a tariff of 0.90 yuan/kWh, while Class II and III areas have rates of 0.95 and 1.0 yuan/kWh respectively.
Han Xiaoping, chief information officer at China Energy Network, explained that these classifications are based on China’s geographical conditions, which are naturally divided from west to east. The policy applies to projects approved after September 1st this year, and those already approved before that date. For projects operational since January 1, 2014, the central government will provide subsidies. For non-financially supported distributed PV projects, the on-grid tariff and subsidy period are generally set for 20 years.
Industry experts believe that a 20-year subsidy period is more favorable than earlier expectations of 10 years, which could help boost domestic PV installations.
**0.42 Yuan Subsidy: A Promising but Uncertain Move**
For distributed PV projects, the policy now offers a subsidy of 0.42 yuan/kWh based on the amount of electricity generated. Previously, the first demonstration area used the same rate, and Meng Xianyu, vice chairman of the China Renewable Energy Society, suggested that this could become the standard going forward.
Lin Boqiang noted that the 0.42 yuan/kWh rate is 20% higher than the previous 0.35 yuan/kWh, exceeding market expectations. However, he also pointed out that while the core obstacles for distributed PV have been addressed, the long-term effectiveness of the subsidy still needs to be observed.
Additionally, any excess electricity from distributed PV systems not used on-site must be purchased by the grid at the local coal-fired benchmark price. Since most distributed systems are installed by households, the balance between input and output remains a key concern.
The NDRC emphasized that the pricing adjustments aim to support renewable energy development without increasing the burden on consumers. It stated that the overall sales price will remain unchanged, helping maintain stable electricity prices and supporting environmental goals.
**Power Station Construction Expected to Accelerate**
After two years of slow growth, the Chinese PV industry is finally seeing signs of recovery. By 2015, the total installed PV capacity is expected to exceed 35 GW. In the first half of the year, the commercial ecosystem for domestic PV installations has improved, with component prices stabilizing or even rising slightly.
Industry insiders predict that increased profit margins will drive faster power station construction, leading to a surge in project development. It is estimated that China’s PV installation capacity will reach 8.5 GW in 2013, up 88% from 4.5 GW in 2012. By 2014, it is expected to surpass 10 GW.
With grid connection and subsidy policies now more supportive, industry confidence has risen, and investment momentum has started to build.
According to reports, the VAT for PV projects is expected to be clarified soon. Currently, the value-added tax for PV operators is 17%. If this is reduced by 8.5 percentage points, the return on investment for power stations could increase by 1–2%, directly benefiting operators.
Meng Xianyu believes that the success of the PV industry depends on the coordination between the grid and the implementation of pricing mechanisms, regional tariffs, and renewable energy incentives. The key to sustainable development lies in the efficient management and integration of these policies.
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