The distributed photovoltaic (PV) industry is currently experiencing a significant surge, often described as a “frenzy.” Since the beginning of the year, two major policies related to distributed PV have been introduced: the “Management Measures for the Development and Construction of Distributed Photovoltaic Power Generation” and “Notice on Deepening the Market-oriented Reform of New Energy Grid Connection Prices to Promote High-quality Development of New Energy”. These new regulations have triggered a rush for installations. Developers are racing against time to complete projects and connect to the grid before the deadlines of May 31 and June 30. This has led to increased prices and shortages in upstream components, inverters, and grid connection cabinets. After a consecutive decline of 30 months, component prices have risen for the first time, with some distributors expressing their frustration: even with money, it is difficult to purchase components and solar cells. A representative from a top five PV manufacturer informed us that component manufacturers are operating at full capacity, with many companies’ delivery times extended into the third quarter. Prices for N-type double-glass components, inclusive of taxes and shipping, have been quoted at 0.78-0.81 RMB/W, but these quotes are only valid for three days, with a 15-day delivery period after payment.
It is clear that this heated market condition will not last indefinitely; once the policy window closes, the current “celebration” will come to an end. In this vibrant market, the distributed PV sector is undergoing significant transformations under the influence of policy changes. Savvy companies have begun to take action to seize opportunities in a market where electricity prices are falling and profit margins are shrinking.
As overall returns decrease, profit distribution will shift. The “Notice 136” states that after May 31, wind and solar energy projects connected to the grid, except for solar thermal and offshore wind projects, must operate under a principle of full market integration for their generated electricity. While the policy establishes a “price difference settlement mechanism” as a buffer, this is merely a transitional measure, and full marketization is inevitable. The most significant change brought about by integrating new energy into the market is that distributed PV, which previously relied on policy support to stabilize prices and guarantees, will now experience significant price fluctuations within a market mechanism. Consequently, the overall profitability of power plants will decline, prompting owners to strictly control costs and significantly reduce non-technical expenses.
In the past, the distributed PV sector was considered highly lucrative. To rapidly expand market size, various platforms significantly increased installation fees to incentivize channel partners and sales personnel to develop the market. Reports indicate that in regions like Jiangsu and Guangdong, sales personnel could earn between 30,000-50,000 RMB for successfully signing a farmer as a client. Such high commissions attracted many individuals from different sectors; platform competition led to a plethora of financial products and packages, resulting in numerous issues. In early March, cities like Zhenping and Anyang in Henan paused PV development and registration due to problems like false reporting, unfair competition, capacity hoarding, and chaotic personnel management.
With the complete market integration of distributed PV, the previous boom is unlikely to return, and the market development model for residential PV will face adjustments. With uncertain investment returns and narrowing profit margins, investors will inevitably lower the settlement prices offered to platform companies, which in turn will reduce installation fees for channel partners and sales personnel. The overall reduction in profits will strip residential PV of its “easy money” appeal and eliminate inefficiencies within the workforce. An industry insider remarked that the previous model of earning quick profits through high EPC fees is no longer sustainable; the focus will shift to operating power plants across their entire lifecycle. However, many of the previously expanded sales personnel lack the necessary expertise, and significant layoffs are expected.
Yet, there remain some uncertainties or perhaps a final glimmer of hope—since Notice 136 only outlines broad directions and principles, detailed implementation regulations will be developed independently by each province. The differing solar radiation conditions, consumption capacities, and energy structures across provinces will lead to varied impacts on returns. This means that future returns from distributed PV will exhibit noticeable inter-provincial differences, and companies with precise strategies will reap the sweetest rewards.
As provinces release their implementation details before the year’s end, investors will gain clearer and more quantifiable investment models for distributed PV, resulting in a more transparent industry landscape.
Consumption capacity will be paramount, and three categories of distributed PV are expected to be favored. Under the two new policies, consumption capacity will become a crucial factor in assessing the quality of PV assets. The management measures categorize distributed PV into four types, with general commercial distributed PV (with a total installed capacity not exceeding 6 megawatts) limited to self-consumption and surplus electricity generation options, while large commercial distributed PV must primarily choose self-consumption modes. Unlike previous policies that allowed for full grid connection, the new regulations encourage self-consumption, demonstrating the government’s intent to promote local consumption and address consumption conflicts.
Based on this, it is believed that three types of distributed PV will be particularly attractive to investors in the future: firstly, small micro-commercial projects and villas will likely become competitive targets for industry players. These projects possess stable electricity demands that can ensure basic returns for power plants and will be a focus for development in the near future. Additionally, scenarios that might be challenging to develop but possess consumption capacity and provide stable returns are expected to be explored by the industry. Secondly, in terms of regional development, the growth of distributed PV in economically advanced eastern provinces will accelerate again, as these areas have concentrated commercial activities and stronger consumption capabilities. The focus of distributed PV development will continue to shift southward, reducing the prominence of traditional northern provinces like Shandong and Hebei. Thirdly, the integration of energy storage with distributed PV will become increasingly important, with a noticeable rise in the willingness to adopt on-site storage solutions. Previously, energy storage for PV was economically unfeasible, leading to a significant issue of “stored energy not being used.” The emergence of small micro-commercial PV and villa PV will not only solve the instability of PV generation but also stabilize market price fluctuations and investment returns. Furthermore, integrating energy storage with distributed PV can combine sales, charging, battery swapping, and load management services, fostering new business models and enhancing consumption while improving investment returns.
In fact, as early as May 2021, the National Energy Administration released a notice encouraging the integration of energy storage with household PV projects where conditions allow, ensuring safety as a priority. According to incomplete statistics, at least 20 regions in 9 provinces have announced policies supporting distributed PV with energy storage, particularly in areas with well-developed PV resources and markets, such as Shandong, Jiangsu, Zhejiang, and Hebei. As more regions support distributed energy storage, the partnership between distributed PV and energy storage will undoubtedly become a lucrative business opportunity.
With the end of rapid expansion, the era of meticulous operation is upon us. In the past few years of rapid growth in distributed PV, various platform companies have established their brands, constructing comprehensive business models from project planning and construction to subsequent operations, thereby capturing significant market share and dominating the top tier of the distributed PV industry. As the market logic transforms, these platform companies will shift from a focus on large-scale expansion to a focus on providing refined services. An insider from one platform company noted, “Previously, the emphasis was on explosive growth; now, it will be about endurance and meticulous management capabilities.” Recently, companies have been seeking breakthroughs in their strategies. This includes refining design and construction processes, simplifying workflows and acceptance processes, and lowering costs across the board, which should lead to significant reductions in overall expenses.
Moreover, meticulous operations will be key to maximizing power plant returns. Over a longer lifecycle, the difference in returns between meticulously managed stations and those that are unmanaged is substantial. Therefore, necessary personnel investment, regular component cleaning, timely troubleshooting, and ensuring stable operations are fundamental maintenance tasks that must be performed. The value of operations management will continue to rise, making companies with excellent operational capabilities highly sought after, as will specialized operations companies. Additionally, digital and intelligent tools will become essential for enhancing quality and efficiency, compelling major platform companies to increase their investments in this area to save on labor costs. Furthermore, the value derived from the green attributes of distributed PV will also be an important avenue to explore, as previously undervalued returns become more appealing.
For platform companies, those capable of analyzing the electricity market will find greater opportunities for expansion. Notably, after the release of Notice 136, the role of “electricity trader” has become highly sought after. Media reports indicate that various platform companies are competing to hire electricity traders, with monthly salaries skyrocketing from around 10,000 RMB to 30,000 RMB. As market mechanisms evolve and competition intensifies, the industry’s “elimination round” may soon begin. Smaller platforms, due to their limited financial strength, service capabilities, and brand reputation, will find it increasingly challenging to compete with larger platforms. Those unable to swiftly adapt to new market changes will likely be eliminated, leading to a significant increase in market concentration.
It’s worth noting that some leading companies have already begun to implement integration and adjustments. For instance, Trina Solar has proposed a new network-based model that integrates customer demand, PV asset construction, financial service plans, long-term operational services, and electricity trading. Similarly, Skyworth Solar, which has ventured into the industry, is strengthening its expansion into upstream equipment manufacturing. Reports indicate that Skyworth Solar has recently restructured its organization to specifically integrate its manufacturing operations for components, inverters, and other equipment into a dedicated division, signaling a move towards greater synergy.
As competition intensifies in the distributed PV market and the process of natural selection unfolds, the industry may well embark on a path towards more mature and healthier development.
