China set ambitious targets for solar, with a goal of 35 GW by 2015 and 100 GW by 2020. Currently, China has 12 GW of solar, with 3 GW of that being distributed solar. For 2014, China set a goal of installing 14 GW of new solar! More than half (8 GW) is slated to come from distributed solar, which is about 10 times the amount of distributed solar installed last year. However, in the first half of this year, only 1 GW of distributed solar was installed. Challenges include:

• The need for a long-term contract to recover the up-front capital costs of solar systems, yet businesses in China generally do not stay in business more than eight years;
• The difficulty in obtaining permission from neighbors and the owners committee of a residential community to install a rooftop solar system; and
• Logistical problems such as finding host sites, arranging financing, and navigating generator interconnection requirements.

These issues can be at least be partly attributed to the newness of distributed solar in China.

Spurred by a combination of federal tax incentives, state incentives and requirements, net metering policies, and innovative business models, about 155,000 residential solar PV projects were installed in the U.S. in 2013 alone. More than 80 percent of all installed solar capacity in the U.S. was installed just in the past three years. Four reasons account for this growth:

1. Solar installations, regardless of size, are eligible for a 30 percent federal income tax credit until the end of 2016.
2. Roughly half of the 30 states with renewable portfolio standards (RPS) have a separate solar-specific requirement as part of the RPS, meaning that utilities or competitive energy suppliers must document that a specified percentage of their electricity sales comes not only from renewables but from solar specifically.
3. Nearly every state allows net metering, where customers can consume electricity from the grid and deliver excess power from their distributed generation facility.
4. Solar companies offer 20-year leases or power purchase agreements that do not require any payments in advance from customers. Instead, customers make monthly payments to the solar company, with those payments being offset by a lower electric bill. In turn, customers agree to allow solar companies to take the benefit of available tax incentives and may receive revenues from the sale of solar renewable energy credits. This business model is known as the “third-party” model, as the solar company becomes an additional party to the business arrangement between electric utilities and customers. By not requiring any initial capital up front, the third-party model overcomes the high initial cost of a solar system and the long period necessary to recoup those costs. The third-party arrangement is somewhat unique to the U.S., primarily because of the policy mechanisms – tax incentives and state RPS policies – in place to support solar.

Distributed solar development in China will be very different than in the U.S., as there are fewer single family homes and more multi-family dwellings; less private ownership of homes; and lower average household income. Additionally, though commercial and industrial facilities have great potential for solar development in China, commercial entities often go out of business and may not always be able pay for long-term solar investments – this makes both customer-owned and third-party-owned commercial systems difficult to develop in China.

In order to address these issues and pave the way for more robust growth, the National Energy Administration (NEA) announced new distributed solar incentives in early September. It added a feed-in-tariff (FiT) option to the existing self-consumption and premium payments to further support distributed solar and expanded the project application area to include public infrastructure, abandoned land, and other land types. The NEA also called upon local governments and grid companies to simplify application, integration, and settlement processes and for financial institutes to provide credit guarantees and discount loans to commercial or industrial entities, as well as individual households. RAP expects these measures to increase the pace of distributed solar installations in China.