The renewable energy sector is undergoing significant changes as China pushes for reforms in its electricity pricing system. On February 9, 2025, the National Development and Reform Commission and the National Energy Administration jointly issued a notice aimed at deepening market-oriented reforms of electricity pricing for renewable energy sources, including wind and solar power. This initiative promotes the entry of full electricity volumes from renewable sources into the market, with pricing determined entirely by market forces.
Since the latter half of last year, there has been a concerted effort to advance the integration of renewable energy, particularly distributed energy resources (DER), into the market. Hebei Province was the first to implement policies facilitating the market entry of distributed solar energy. The previous policy of guaranteed purchase at fixed prices is no longer sufficient to meet demand and has even led to challenges in energy absorption, particularly in the realm of distributed solar energy.
As the capacity of newly installed distributed energy systems continues to surge, the “red zones”—areas where new distributed energy projects are paused due to grid capacity limitations—have expanded. The Guidelines for Assessing the Grid Capacity for Distributed Energy Access categorize grid areas into red, yellow, and green zones based on their ability to accept new projects. Red zones indicate that the grid is unable to handle additional distributed power, particularly when it involves feeding power back into high-voltage networks.
Last year, the number of red zones increased, with provinces such as Zhejiang, Shandong, Guangdong, Henan, Heilongjiang, and Fujian halting new distributed energy access. Power systems are structured by voltage levels, with transmission networks operating at higher voltages (220 kV and above) and distribution networks at lower voltages (110 kV and below). Higher voltage grids can be likened to larger water tanks with greater capacity for absorbing energy. When distributed solar energy exceeds the absorption capacity of lower voltage grids, it must be fed back into higher voltage networks, which is increasingly becoming unfeasible as demand grows.
Past experiences showed that electricity traditionally flowed from power sources to users, but with distributed solar energy being installed on the user side, reverse flow changes this dynamic, potentially affecting system safety and energy quality. Consequently, the guidelines restrict reverse power flow into grids above 220 kV, necessitating that distributed solar energy be absorbed within lower voltage networks.
Some provinces with rapid installations of distributed solar energy are already facing absorption challenges. In October 2023, the Henan Provincial Development and Reform Commission released a notice highlighting that red and yellow zones within the province have minimal or no capacity for new distributed solar energy projects. Despite leading the nation in new installations of distributed solar energy in 2023, the absorption capacity in Henan is dwindling.
As a result of the intermittent nature of renewable energy generation, the challenges of energy curtailment persist. Experts note that while centralized solar energy can be managed through planning and market mechanisms, distributed solar energy, which typically feeds into local grids, has limited space for absorption. The underlying issue stems from a mismatch between supply and demand. In June 2023, the National Energy Administration began pilot assessments of grid capacity for distributed solar access in six provinces, mandating timely completion of evaluations.
Moreover, the infrastructure of distribution networks impacts the absorption capacity for distributed solar energy. Power systems require real-time balance between supply and demand, employing various methods such as boosting and stepping down voltage. If too much electricity is fed into a grid that cannot accommodate it, the flow rate will decrease, jeopardizing system integrity.
As the number of new installations surged, particularly in agricultural areas like Longyao County, the local infrastructure proved inadequate. In 2022, the Longyao power supply bureau handled approximately 200 new solar user applications weekly, with each requesting about 30 kW of capacity, resulting in excessive installations that the local grid could not absorb.
Industry practitioners have noted a disconnect between the explosive growth of distributed solar energy installations and the corresponding increase in grid absorption capacity. Energy companies prioritize system safety, leading to stringent controls over distributed solar access. In some instances, areas classified as red zones have been overly restricted, exacerbating the challenges faced by distributed solar projects.
In October 2022, the National Energy Administration reported multiple issues related to distributed solar energy access, including violations by power supply companies that expanded red zones, limiting project integration. For example, in Harbin, a power company deemed the absorption capacity for distributed solar projects in certain areas to be zero due to other renewable energy sources feeding back into the grid.
The challenges facing the distribution network are significant, and both State Grid Corporation and Southern Power Grid have prioritized distribution network construction, with planned investments of over 1.2 trillion yuan during the 14th Five-Year Plan period.
As the market opens up, it is crucial to address the chaos of rapid growth. Between 2020 and 2024, the newly installed capacity of distributed solar energy surged dramatically, with figures reaching as high as 120 million kW in 2024. The primary drivers behind this growth, particularly in rural areas, have been commercial interests and government policies aimed at promoting distributed solar energy development.
Government incentives, including subsidies and policies supporting the integration of distributed solar energy, have encouraged local governments to showcase their achievements in energy transformation. Additionally, advancements in technology and reductions in component prices have improved the economic viability of distributed solar energy, while enhancements in energy storage technologies have provided more reliable output solutions.
The transition to market-oriented trading for distributed solar energy is underway. Starting in 2024, new projects will have the option to participate in market trading for a portion of their output. This shift is already causing a cautious approach among developers as they evaluate potential impacts on profitability.
Experts suggest that as distributed solar energy enters the market, its deployment will become more rational, alleviating some of the absorption pressures. The future will see a push towards effective matching of distributed solar energy with local demand, encouraging nearby consumption and alignment between supply and demand.
Ultimately, the key to resolving the absorption challenges lies in promoting localized consumption. Future policies will focus on facilitating direct sales of excess energy to neighboring users, enabling a more efficient and equitable energy market. As the sector evolves, the aim is to ensure that distributed solar energy can be seamlessly integrated into the grid while meeting the growing energy demands of local consumers.
