WORKING PAPER
DISTRIBUTED ENERGY IN CHINA:
REVIEW AND PERSPECTIVE 2020–2025
ERIC MARTINOT, MIAO HONG, HU RUNQING, ZHANG MOFAN, YUAN MIN
EXECUTIVE SUMMARY
Highlights CONTENTS
Executive Summary ......... 1
Distributed energy is one of the cornerstones of
Introduction ............. 3
China’s energy transition. Yet distributed energy is
Policy History and Outlook ...... 7
still drastically underdeveloped relative to its potential
in China. Market Drivers and Use Cases—History and Outlook .... 8
Market Barriers—History and Outlook .... 9
In China, over the past 15 years, policies for distrib- Distributed Energy—History and Outlook ....... 11
uted energy have greatly evolved and expanded. Dur- Economics of Distributed versus Centralized Energy
ing the period 2020–25, current policy supports willSolutions—History and Outlook ...... 13
be phased out, and distributed energy will gravitateRecommendations .......... 14
toward market-oriented and competitive models. New Conclusion—China Distributed Energy Outlook .... 16
policies will indirectly support distributed energy,Endnotes .......... 18
remove barriers, and provide a favorable environment
References .............. 18
for distributed energy to continue to grow.
A variety of market drivers have emerged in recent Working Papers contain preliminary research,
years, beyond cost-subsidy policies. Very specific dis- analysis, findings, and recommendations. They are
tributed energy “use cases” are benefiting from thesecirculated to stimulate timely discussion and critical
market drivers. feedback and to influence ongoing debate on emerging
issues. Most working papers are eventually published
Use cases for distributed energy will continue to grow in another form and their content may be revised.
for integrated microgrids, energy storage, electric
vehicle charging infrastructure, and larger volumes of Suggested Citation: Martinot, Eric, Miao Hong,
small-scale projects for industrial and commercial end Hu Runqing, Zhang Mofan, and Yuan Min. 2020.
users. “Distributed Energy in China: Review and Perspective
2020–2025.” Working Paper. World Resources Institute,
In supporting the acceleration and scale-up of distrib- Beijing. Available online at wri/working_
uted energy, a variety of recommended actions are paper/2020/10/DISTRIBUTED_ENERGY_IN_CHINA_
available to government agencies, industry, project REVIEW_AND_PERSPECTIVE_2020_2025_CN.
developers and financiers, foundations and other pub-
lic funders, and research institutions.
WORKING PAPER | September 2020 | 1Context expected to take center stage in the coming decade.
Distributed energy (DE) differs from centralized energy Existing forms of policy support are ending, while new
in several respects. It has the advantages of high energy market-based policies are emerging that will indirectly
efficiency because it utilizes local renewable resources,support distributed energy, remove barriers, and pro-
and it is located closer to end users, thus avoiding highvide a favorable environment for distributed energy to
transmission costs. It is an effective supplement to continue to grow.
centralized energy systems.
In parallel with policy evolution, there is an emerging
Distributed energy is one of the essential characteristics new generation of use cases for distributed energy in
of China’s energy transition. Yet, there are still many China.
potential scenarios for DE development in China. Despite
large and growing markets for some distributed energy Most of the barriers discussed in this paper will re-
applications, only a small fraction of the existing economic main during the period 2020–25.
potential has been realized. Existing policies, technology
Costs will continue to decline over the next five years.
applications, business models, financing sources, and
stakeholder involvement have scarcely begun to address To support acceleration and scale-up of distributed
the true potential or capture the true long-term value of energy, a variety of recommended actions are avail-
distributed energy. able to government agencies, industry, project devel-
opers and financiers, foundations and other public
About This Working Paper funders, and research institutions.
This paper surveys the future of distributed energy in China
for the coming period 2020–25, based on the past and Recommendations
current market and policy situation, potential, challenges,
and evolving and emerging use cases (i.e., technologyBased on this analysis, along with the collective knowledge
applications and business models) for distributed and work of the authors, we make the following
energy. The study provides investors, strategy advisers, recommendations to promote and accelerate the growth of
policymakers, and foundations with a concise background distributed energy in China.
and perspective relevant to decisions and strategies for
promoting distributed energy in China in the coming years. For government agencies:
Develop market-based mechanisms and rules that
Approach and Objectives of the Paper allow local energy trading and chart a pathway
Use cases for distributed energy are an effective way toto enable distributed energy to participants in
portray its real potential in China to contribute to thefuture wholesale markets and direct sales to other
country’s climate and clean energy goals. A use case is customers, including both generation and demand-
a particular technology application and configuration response.
that is profitable within the context of a specific business
Promote a simplified grid-connection process for
model and enabling environment (including policies
distributed photovoltaic systems to all distributed
and institutional arrangements). Questions we are
renewable energy projects.
trying to answer are, Where do we stand with regard to
achieving long-term distributed energy potential in China, Consider developing local markets for distributed
considering which use cases have already demonstrated heating and cooling, possibly including local feed-in
scale-up potential and which others remain untested and tariffs or other support policies for renewable energy-
unproven but show promise? How can we foster greater based heating.
scale-up of both proven and potential use cases?
Explore more distributed solar applications that com-
Key Findings bine with new types of infrastructure, and make such
applications practical for commercial projects such as
China will develop many new innovations in clean parking structures, roads and highways, green spaces,
energy, and, among them, distributed energy isfencing, and ground-level building peripheries.
2 | DISTRIBUTED ENERGY IN CHINA: REVIEW AND PERSPECTIVE 2020–2025
Establish a national guarantee fund for innovative dis- indicators beyond simple capacity (megawatts [MW])
tributed energy projects that pilot new business models are possible and could be used to explicitly measure
and technology configurations, with detailed investiga- and define outcomes for distributed energy. They
tion and public dissemination of results and metrics.include strategic-level indicators, policy indicators,
and proof-of-concept and pilot project metrics of
success and viability.
For industry, project developers, and financiers:
Innovate new business and finance models so results Develop a variety of research agendas that are needed
can be learned and shared within the industry.for distributed energy at the present time.
Provide higher-quality supervision for new projects.
Identify and market third-party energy service company INTRODUCTION
(ESCO) services to new types of potential customers.
Distributed energy (DE) is one of the cornerstones of