Renewable and Sustainable Energy Reviews 110 (2019) 53–64

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Renewable and Sustainable Energy Reviews

journal homepage: www.elsevier.com/locate/rser

Technology, cost, economic performance of distributed photovoltaic T

industry in China
Zhao Xin-ganga,b,∗, Wang Zhena,b
a
School of Economics and Management, North China Electric Power University, Beijing, 102206, China
b
Beijing Key Laboratory of New Energy and Low-Carbon Development (North China Electric Power University), Beijing, 102206, China

A R T I C LE I N FO A B S T R A C T

Keywords: As subsidies continue to fall, the technology and cost performance of distributed photovoltaic (PV) determines
Distributed PV the progress of its grid parity. Based on the discussion of technology and cost, this paper analyzed the economic
Technological progress performance of China's distributed PV industry by utilizing the two indicators of levelized cost of energy (LCOE)
Industrial performance and internal rate of return (IRR). The results show that: firstly, the current external environment is generally
Cost-benefit analysis
conducive to the development of distributed PV, but there are still some constraints. Secondly, with the decrease
Levelized cost of energy (LCOE)
of unit investment cost, distributed PV can achieve the goal of parity before 2025. Thirdly, distributed PV
projects in the three types of solar energy resources all have high IRR, and the economic performance is better
for the projects with high proportion of spontaneous self-use. At the end of the paper, policy recommendations
are offered as references for the government.

1. Introduction distributed PV subsidy from 0.37 Yuan/kWh to 0.32 Yuan/kWh, and

1.1. Background
In the past, China had given priority to the development of large-
scale centralized PV power plants, and there was a serious phenomenon
of discarding light. With the transformation of China's economic
structure, the development of the tertiary industry has demonstrated a
more decentralized energy demand [1]. The Distributed PV has become
a kind of power generation technology with broad application prospects
[2], present noteworthy benefits for the energy markets and customers
[3]. The development of distributed PV is the right choice based on
actual national conditions and lessons learned from centralized PV.
2017 is a critical year of distributed PV development of China. As
shown in Fig. 1, China's distributed PV installed 19.44 GW, which
makes an increase of 15.21 GW year-on-year, and the growth rate
reached 359%. As the market improves and becomes more and more
mature, the value of distributed PV investment has become prominent,
attracting a large number of companies and capital to join the industry.
At the same time, the external environment faced by distributed PV is
undergoing profound changes. The uncertainty affecting the develop-
ment of its industry has exceeded any period in the old days. In 2018,
the National Development and Reform Commission promulgated “The
Notice on Matters Related to PV Generation in 2018” which reduced the
restricted the installed scale. The logic of the long-term growth of the
distributed PV industry lies in the replacement of traditional energy
sources after parity and the natural growth of the industry's own de-
mand. With the reduction of subsidies, the technological progress of the
distributed photovoltaic industry must be improved and the cost further
reduced. Also, it will ultimately get rid of policy dependence and rely
on the industry itself to form a competitive edge.
1.2. Literature review
Distributed PV is still a policy market. Niu Gang [5] and Hu Jing [6]
summarized China's distributed PV policy and pointed out the im-
plementation of policies. Zhang S [7] believed that due to restrictions
on distributed PV across the country, the policy doesn't work a lot, and
further innovation policies are needed. According to the main aspects of
the policy, Yuan C [8] believed that China's investment policy on the PV
industry should be gradually cancelled and it also should combine with
deployment and R&D. Chen W [9] studied the optimal subsidy levels for
distributed PV generation from the perspective of maximizing the net
policy benefits (environmental and economic). G Feng [10] drew les-
sons from Japan and assessed China's distributed PV poverty alleviation
policy from three aspects: socio-economic development, natural en-
vironment, and energy supply security.

∗
Corresponding author. School of Economics and Management, North China Electric Power University, Beijing, 102206, China
E-mail address: 50601500@ncepu.edu.cn (Z. Xin-gang).

https://doi.org/10.1016/j.rser.2019.04.061
Received 21 May 2018; Received in revised form 18 April 2019; Accepted 21 April 2019
Available online 17 May 2019
1364-0321/ © 2019 Elsevier Ltd. All rights reserved.
Z. Xin-gang and W. Zhen
Nomenclature
c system installation capacity
h annual peak hours
PR performance ratio
d degradation rate
It initial investment cost
Mt maintenance costs for t
Ot operation cost for t
Ft interest expenditures for t
Qt generation capacity for t
CIt cash inflow in the t year
COt cash outflow in the t year
The research of distributed PV technology mainly focuses on the
operation of PV power plants and industrial technological innovation.
Taking distributed PV power station as the research object, most
scholars mainly focus on the grid-connected operation of distributed PV
[11–14] and system optimization [15–17]. About the technological
innovation of PV industry, Zhao Xin-gang [18] and You Huai-mo [19]
believe that technological progress has promoted the development of
China's PV industry, and the energy efficiency of PV enterprises is
constantly improving. Mahmood H. Shubbak [20] analyzed the tech-
nological innovation system of China's PV industry from three dimen-
sions: institution, market and participants innovation activities.
Economic benefit analysis is a necessary method to judge whether it
is competitive and scholars have conducted a lot of related research.
Choosing residents and business users as his subject, Hanqiao S [21]
compared the economy of distributed PV in 6 regions of China between
these them. It turns out that in most areas, they have good economic
benefits. Martin Mitscher [22] and Antonio Colmenar-Santos [23] dis-
cussed the economics of distributed PV from the perspective of finan-
cing costs and on-grid tariffs. Zang Ning-ning [24] and Shi jing-li [25]
analyzed the cost of per kilowatt of PV in China's major provinces, and
predicted that they would be able to get grid parity by the middle of the
13th Five-Year Plan. Su Jian [26] and Xue Jin-hua et al. [27] estab-
lished a life cycle cost/benefit calculation method to analyze the dis-
tributed PV cost efficiency under different operating modes.
China's distributed PV subsidies have begun to decline, so it is ne-
cessary to analyze the future development direction and competitive-
ness of the industry. At present, the research on distributed PV in China
mainly focuses on a certain angle of policy, technology and economic
performance, lacking comprehensive analysis and judgment on future
development trends. Firstly, this paper sorts out the external develop-
ment environment of China's distributed PVs. Secondly, based on the
inherent relationship between distributed PV technology and cost, the
future technology development direction and cost change trend are
discussed. Finally, the economic performance and its changes of
Fig. 1. 2013–2017 China's distributed PV new installed capacity and cumula-
tive installed capacity. Source [4].
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Renewable and Sustainable Energy Reviews 110 (2019) 53–64
S1 national subsidy
S2 provincial and municipal subsidy
α percentage of self use electricity to the annual electricity
production
r discount rate
P1 local electricity price
P2 desulfurization benchmark price
P3 benchmark price
t year t
IRR internal rate of return
NPV net present value
T life span of the project
distributed PV are measured by the two indicators of LCOE and IRR.
The innovation of this paper is to study the development of distributed
PV in China by combining internal (technology and cost) and external
(the development environment) perspectives, and dynamically analyze
the changing trend of economic performance.
2. External environment analysis
2.1. Political factors
From a global perspective, the PV industry has been a highly policy-
driven industry so far. Without policy support, it is difficult to rely on
market mechanisms for development [28]. Vigorously exploiting the
distributed PV market and orderly advancing the construction of PV
power plants are still the main targets of current policies.
2.1.1. Incentive policies
In recent years, the state has attached great importance to dis-
tributed PV power generation, and has successively issued a series of
supporting policies covering market planning, electricity price sub-
sidies, grid-connected services and technological innovation.
“The 13th Five-Year Plan for Energy Development” clearly states
that by 2020, the installed capacity of solar power generation will reach
over 110GW, of which distributed PV power generation will reach
60GW. This provides a broad space for development of distributed PV.
In 2018, the National Development and Reform Commission (NDRC)
stipulated that the subsidies for distributed PV power generation were
0.37/kWh, which decreased less than the adjustment of grid-connected
price of PV power stations, ensuring the profits of the distributed PV
stations. In terms of technological innovation, the National Energy
Administration (NEA) has issued a series of policies to promote the
progress of related technical indicators, improve the efficiency of dis-
tributed PV power generation, and realize intelligent distributed PV
applications.
2.1.2. Regulations
In order to standardize the orderly growth of distributed PV market
scale, prevent the phenomenon of excessive construction and blind
expansion of production capacity. The government has issued a series of
control policies in terms of project management, use of financial aid
funds, and supervision of technical indicators. In 2014, NEA issued
“The notice of special supervision on the implementation of grid con-
nected acquisitions and subsidies implementation”, which regulated the
grid-connected acquisition and subsidy settlement behavior, con-
tinuously improves related regulations. In 2017, NEA issued “The no-
tice on raising technical specifications of major PV products and
strengthening supervision work”, it improved the technical specifica-
tions and market access threshold for PV products.
It is an important part of current regulation policy to curb blind
investment, establish normative standards and guide industry self-
Z. Xin-gang and W. Zhen
development. These regulatory measures have affected the develop-
ment speed of distributed PV to some extent, but they can increase the
market entry threshold and ensure the competitiveness of distributed
PV.
2.2. Economic factors
2.2.1. Business model
With the continuous increase in the activity of the distributed PV
market, market participants and business models have gradually in-
creased, and investment in projects has become more diversified. In
general, it can be summarized into three modes: energy management
contract, unified purchase and sales operation mode and user self-use
mode [27,29]. Differences between the three modes are shown in
Table 1.
Due to difficulties in financing of distributed PV projects and com-
plex stakeholder relationships, the current business model is imperfect.
In the future, the business model will develop in the direction of flex-
ibility, specialization and commercialization, and become the focus of
competition among the participants in the market. It is more likely to
bring about the emergence of a group of distributed PV operators.
2.2.2. Investment and financing mechanism
At present, financing channels for distributed PV projects in China
mainly include policy financial support, bank loans, capital market fi-
nancing, and corporate self-raising. The details are shown in Table 2.
Policy-based financial support is still the main form. The government is
actively launching green bonds and green financial reforms and in-
novation pilot zones to facilitate distributed PV financing. Since 2015,
banks in various provinces have launched PV loan business to promote
the financing of distributed PV projects.
In general, the actual financing situation of distributed PV is not
optimistic, the main problems are single financing channels and in-
creasing proportion of policy subsidies on the financing structure. The
reasons for these problems can be summarized in three aspects: First,
the income of distributed PV is unstable [31]. Second, the investment
market is small, and the power trading market is still immature. Third,
the current financial system in China is still incomplete. It focuses on
the traditional centralized energy production model dominated by
traditional large state-owned enterprises.
2.3. Social factors
Distributed PV industry is faced with dilemma of development in
China. On the one hand, it is advocated and supported by the govern-
ment and enjoys many preferential policies. On the other hand, the
public lacks sufficient knowledge of it and its participation is not high
enough.
2.3.1. Opportunities
The development of renewable energy can drive economic growth,
create new jobs and improve human health and welfare at the national
level [32]. At present, China is in a critical period of improving the
quality of economic growth and strengthening environmental protec-
tion. As an industry with positive externalities, distributed PV industry
has two characteristics of economic and environmental friendliness,
which is in line with the current development direction of society. As an
Table 1
Comparison of different operating modes of distributed PV. Source [30].
Business model Investment forms
Energy management contract Third party investment
Unified purchase and sales Third party investment
User self-use User investment
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Renewable and Sustainable Energy Reviews 110 (2019) 53–64
important way to use clean energy, distributed PV power generation
can reduce the use of traditional fossil fuels and avoid more environ-
mental pollution.
At the same time, there are abundant roof resources in vast rural
areas and economically developed eastern areas, which provide a huge
space for the development of distributed PV. In the vast rural areas, PV
poverty alleviation work is continuously advancing, and a new type of
agricultural model dominated by distributed PV is developed according
to local conditions. Many cities are pushing building integrated PV
systems (BIPV) that combine distributed PV with urban development.
2.3.2. Barriers
For rooftop distributed PV projects, assessing the structural suit-
ability of the roof is critical [33]. When installing distributed PV, it is
required to comply with the “National Standard for Rooftop Distributed
Power Plant Structure”. China has abundant roof resources, but there
are not many high-quality roof resources. On the one hand, the number
of roofs owned by Chinese urban residents is small. Many power station
constructions need to occupy public roofs, and it is difficult to co-
ordinate the interests of residents.
China's central and eastern regions are well-developed in industry
and commerce, and there is an economic need to develop distributed
PV, but solar energy resources in these regions are not abundant. In
addition, according to the research that when the haze is severe, the
effective electricity generation hours of PVs will be reduced by 80%
[34]. Frequent air pollution problems have affected the economic
benefits of distributed PV. These objective phenomena limit the de-
velopment of the distributed PV industry to a certain extent.
3. Technologies and costs analysis
3.1. Technologies
3.1.1. Technology status
Distributed PV power generation is a new and promising technology
as it can effectively solve the problem of power loss during transmission
[35]. Therefore, most countries have prioritized the development of
distributed PV systems. At present, distributed PV technology mainly
concentrates on the manufacturing of distributed PV products and the
application of terminal products.
3.1.1.1. Distributed PV products manufacturing. Distributed PV
manufacturing needs to go through the four basic links of silicon,
silicon wafer, battery and battery modules, see Fig. 2. In these four
parts, the technical status of each part is different.
3.1.1.1.1. Silicon material. Silicon material is mainly purified from
silica ore to silica material, so purification technology is the key
technology of this link. In the purification method, it's more mature
to have the improved Siemens method. Fluidized bed technology has
also begun to receive the attention of manufacturers. At the same time,
the market share has also begun to increase. The reduction power
consumption of the purification process dropped from 70 kWh/kg-si in
2011 to 50 kWh/kg-si at present [37].
3.1.1.1.2. Silicon wafer. In the manufacturing process of silicon
wafers, the pull rod and slicing technology play a key role.
Monocrystalline silicon wafers are produced by rod-pulling process,
which have better power generation performance and are widely used
Application area
Industrial parks and concentrated application demonstration areas
Power Generation Group
Power users with rooftop resources and a certain initial investment capacity
Z. Xin-gang and W. Zhen
Table 2
Distributed PV financing channels. Source: Authors.
Financing channels Main contents
Policy financial support On-grid tariff subsidy policy, local government financial support, taxation policy, financial support from China Development Bank
Bank loans Some banks began to cooperate with PV companies, and the restrictions on private PV companies are still relatively high.
Capital market financing Equity financing, bond financing, financial leasing, trust and other financing modes
in distributed PV. Diamond wire technology has been fully used in the
field of monocrystalline silicon wafers in 2017, and the output of square
bars has further increased to about 60 wafers [37].
3.1.1.1.3. Solar cell. The solar cell link is the core of the whole
distributed PV industry chain. Judging from the market share of battery
technology, BSF technology is the mainstream technology. In the
future, with the development of technology, more efficient PERC
batteries and N batteries will become the mainstream. From the
perspective of conversion efficiency, battery production technology
has advanced rapidly in recent years, driven by the PV leader program.
As shown in Fig. 3, the large-scale production of polycrystalline and
single crystal cell conversion efficiency has reached 18.7% and 20.3%,
and there is a higher space to improve for the crystal cell.
3.1.1.1.4. PV modules. Component technology is to improve the
output power of components with the encapsulation technology when
the battery efficiency is established. Compared with battery technology,
it has lower technical difficulty and can be superimposed on each other.
Consequently, it is easier to popularize widely. The application of
efficient PV module technology cannot only effectively reduce the cost
of PV modules, but also improve the performance and life of PV
modules. In the third batch of lead PV applications in 2018, two-sided
technology has been widely used, and half/stack technology has also
begun small-scale applications [38]. With the increasing pressure to
reduce costs, enterprises have increased investment in high-efficiency
component technology research, and it has already achieved certain
mass production capabilities.
3.1.1.2. Distributed PV applications. Distributed PV applications mainly
refer to the application of PV modules and related electrical equipment
to establish a distributed PV power station for power generation.
Compared with centralized PV, distributed PV is advantageous in self-
use, local consumption, and local balance [39], and can develop a
variety of application forms according to local conditions.
3.1.1.2.1. Distributed PV grid connection. According to the difference
in grid-connected characteristics and operation modes, distributed PVs
are roughly divided into three types: off-grid PV system, hybrid micro-
grid power system and grid-tied PV system (Fig. 4). At present, grid-tied
PV systems are more used and generally refers to the PV power
generation project that is connected to the power grid with a voltage
Fig. 2. Distributed PV production process. Source [36].
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Renewable and Sustainable Energy Reviews 110 (2019) 53–64
level of 10 kV and below, and the total installed capacity of a single grid
point does not exceed 6 MW [40]. China has initially mastered the
design and integration technology of distributed grid-connected PV
system [41], and the development of micro-grid technology has
basically synchronized with the international. However, the current
distribution network is not very good at accepting distributed power
stations. It is difficult to meet the grid operation of a large number of
distributed PV systems.
3.1.1.2.2. Distributed PV operation and maintenance. Compared with
the rapid development of distributed power station construction, the
operation and maintenance management of the power station has not
been taken seriously. Since the distributed PV power generation system
is an independent unit, the volume is small and the layout is scattered,
which requires high operation and maintenance technology. At present,
a scientific and all-around standardized distributed operation and
maintenance system has not been established. However, it is
necessary to realize the exchange of information between the power
supply and users and the power grid, and use intelligent energy-saving
means to realize intelligent operation and maintenance in the future
[42].
3.1.2. Technological progress
At present, the distributed PV industry is continuously increasing
investment in research and development (R&D). It also keeps improving
its technological innovation capability, and gradually forming a future
technological development route that meets its own characteristics.
3.1.2.1. R&D investment. The long-term competitiveness of distributed
PV companies lies in technology development and cost control
capabilities. Enterprises with these two core competencies will stand
out in the long term competition. We select 10 representative
companies in the PV industry, according to the annual report
disclosed, the R&D investment in the past five years is shown in Fig. 5.
The entire industry is paying more and more attention to techno-
logical innovation, and R&D investment has been growing steadily over
the years. From the perspective of the sector to which the company
belongs, the R&D investment in silicon wafers and solar cells links has
increased the most. This is also two most competitive links in the cur-
rent PV industry chain in China. Under the continuous strengthening of
Z. Xin-gang and W. Zhen
Fig. 3. Differences in conversion efficiency between different battery types. Source [37].
industrial R&D investment, it is expected that the market competi-
tiveness of the distributed PV industry will continue to strengthen.
3.1.2.2. Technology development route. There are different routes of
technological development in all aspects of distributed PV industry.
Generally speaking, in the process of distributed PV manufacturing, it is
mainly to promote the technological upgrading of the production of
basic materials, reduce the consumption in the production process, and
improve the performance and reliability of the terminal products. The
direction of technological progress is shown in Fig. 6.
In the aspect of distributed PV applications, it aims at promoting the
intelligent construction, operation and maintenance of distributed PV
power stations by using new generation information technology such as
internet and big data. At the same time, it is necessary to improve the
stability and security of distributed PV power generation, develop
agricultural PV, PV poverty alleviation and other forms of application.
Promote the construction of integrated PV system, such as Building
Integrated PV (BIPV), combining distributed PV with urban develop-
ment.
Fig. 4. Classification of distributed PV power generation systems. Source [41].
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Renewable and Sustainable Energy Reviews 110 (2019) 53–64
3.2. Costs
3.2.1. Cost composition
The cost of distributed PV mainly includes three aspects: investment
cost, operation and maintenance cost and financial cost. Fig. 7 shows
the details of the costs.
The investment cost of distributed PV consists of the cost of PV
modules, balancing system cost (BOS), and soft cost. The cost of PV
modules is determined by raw material costs, notably silicon costs, cell
processing/manufacturing costs and module assembly costs [45]. At
present, for conventional distributed PV projects, the cost of investment
is roughly 6.5 yuan/W. Fig. 8 gives a detailed breakdown of the cost of
investment. Among the investment costs, PV module costs account for
46% of the investment cost, which takes up the largest part. The cost is
mainly related to the three links of silicon material, silicon wafer and
battery in the industrial chain. The cost of BOS accounts for 30% of the
total investment cost, and the cost of the combiner box, power dis-
tribution cabinet and grid connection is relatively high. Soft costs ac-
count for 24% of investment costs. However, the soft cost of distributed
PV is difficult to measure because of the special locations and vague
definition to the attributes of occupied sites. They need to be considered
in conjunction with specific projects on the ground. For projects with
large installed capacity, additional copper cables, substations, and other
Z. Xin-gang and W. Zhen
Fig. 5. PV company R&D investment in 2013–2017.
investments in local grid infrastructure may be required [46].
The operation and maintenance costs of distributed PV mainly in-
clude depreciation of power stations, labor costs, spare equipment
costs, equipment maintenance costs, etc. Maintenance costs for systems
below 10 kW are almost negligible, but for MW-class power plants,
maintenance costs typically account for 1%–3% of total investment
[48]. At present, there are three modes of operation and maintenance:
asset entrustment, full-service entrustment, and service agency en-
trustment. Table 3 shows the different operating and maintenance costs
under different modes.
Financial cost refers to the financing cost during the period of in-
vestment and the cost of tax after generating electricity. For investors
who do not have enough funds, they need to take the financing cost into
consideration when they invest in distributed PV plants. Because of
different financing methods, the financing cost is also different
(Table 4).
3.2.2. Cost change trends
With the increase of competition pressure of distributed PV, cost
reductions will be driven by increasing economies of scale, more
competitive supply chains and technical progress [51]. The impact of
technological progress on the cost reduction of distributed PV industry
can be understood from two aspects: on one hand, the decline in the
price of PV modules will directly reduce the investment cost of dis-
tributed PV. PV modules have a high learning rate. From 2019 to 2017,
PV module prices dropped by about 83% [52]. On the other hand, the
Fig. 6. Technological development of PV products manufacturing. Source [37,43].
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Renewable and Sustainable Energy Reviews 110 (2019) 53–64
improvement of module conversion efficiency means that the number
of modules needed for the same generation scale is reduced, which
indirectly reduces the BOS cost and operation and maintenance cost of
distributed PV. If the efficiency of PV modules increases by 1%, the
price of PV power generation systems will drop by about 17% [53].
According to the cost of all aspects of PV manufacturing: Silicon
material accounts for 66% of silicon wafer cost, silicon wafers account
for 70% of battery cost, and battery chips account for 65% of module
cost [47], BOS costs account for 30% of the investment cost. When
distributed PV meets the requirements of grid parity, the investment
cost needs to drop to 4.5 yuan/W. The cost reduction in each link is
shown in Fig. 9.
Due to the different means of improving the efficiency of each link
in the distributed PV industry, the path of their cost reduction is also
different. Due to the expansion of silicon links production capacity and
the progress of purification technology, considering the high gross
margin of silicon links, the pressure of cost reduction of silicon links is
the smallest. For the silicon wafer links, it mainly depends on the cost
reduction of silicon materials, plus the technology of diamond wire
cutting and long crystal to meet the requirements of cost reduction. For
the battery segment, PERT, PERC technology is needed to improve ef-
ficiency, the application of multi-grid technology to reduce silver slurry
consumption, in order to reduce costs. For PV module links, the ulti-
mate cost of investment is reduced by promoting advanced component
packaging technology to increase the single-watt power generation
throughout the life cycle. For BOS cost, it is mainly through the
Z. Xin-gang and W. Zhen Renewable and Sustainable Energy Reviews 110 (2019) 53–64

Fig. 7. The details of the costs. Source [44].

application of trackers to increase performance ratio to reduce costs. The key economic and technical parameters used in the calculation
process are shown in Table 5. The data of technical parameters come
from the product introduction of PV enterprises. The basic situation of
4. Economic performance
the three types of solar energy resources areas is shown in Table 6.
Annual hours per year are calculated by software PVsyst. Desulphur-
4.1. Method
ization coal benchmarking electricity price and consumer electricity
price are inquired by the local Power Grid Corp. Benchmark electricity
In order to determine the economic performance of distributed PV
price data are obtained from NEA and the data of local subsidies come
industry, this paper investigates the LCOE and IRR of distributed PV
from the policies promulgated by the local development and reform
industry. Among the main electricity users in China, the average in-
commission.
dustrial and commercial users have the highest electricity price, and
Among them, the calculation process of distributed PV generation,
they also invest the most in distributed PV projects. Therefore, the
generation income, LCOE and IRR are as follows:
following discussions are based on industrial and commercial users.
Distributed PV to achieve grid parity includes two aspects: 1. User
(1) Generation capacity of distributed PV power station
side parity. The distributed PV LCOE is less than or equal to the selling
price. According to the types of users and the cost of purchasing elec- Qt = c × h × PR × (1 − d )t (1)
tricity, they can be divided into industrial and commercial users' side
c is the system installation capacity, in units of kWh. h is the annual
parity. 2. Power generation side parity. The distributed PV LCOE is
peak hours, in units of hour. PR is the performance ratio of the PV
below or equal to the price of desulfurization coal benchmark. In this
system. d is the degradation rate.
paper, the LCOE of distributed PV system in three types of solar energy
resource areas is calculated and the sensitivity analysis is made.
(2) Revenue from distributed PV generation
The core driving force of the development of distributed PV industry
is the IRR of PV projects. As long as the IRR of the operator can be
The revenue of distributed PV power generation is mainly divided
guaranteed to reach an attractive level (such as 8% or more), the in-
into three parts: 1. State subsidies. 2. Offset expenses for using elec-
vestment income of distributed PV can be maintained at a relatively
tricity. 3. Revenue from sales of electricity. For different operation
high level. Newly installed demand for distributed PV is also guaran-
modes, the income of different parts is different.
teed, and both the manufacturing side and the operating side can
benefit from it simultaneously. This paper calculates the IRR of dif- Rt = (S1 + S2) Qt + αP1 Qt + (1 − α ) P2 Qt (2)
ferent regions and different operation modes, and then calculates the
Rt = S2 Qt + P3 Qt (3)
impact of benchmark price and subsidy reduction on the IRR of dis-
tributed PV. Formula (2) represents the revenue under the mode of self use and

Fig. 8. The details of investment costs. Source [45,47].

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Z. Xin-gang and W. Zhen Renewable and Sustainable Energy Reviews 110 (2019) 53–64

Table 3
The different operating and maintenance costs under different modes. Source [49].
Modes Cost

Asset entrustment The cost is high, usually over 0.13 yuan/W per year, applicable to the group of investment customers
Full-service entrustment The cost is moderate, usually 0.08–0.11 yuan/W per year. It is suitable for customers who do not generate electricity as main business income.
Service agency entrustment The cost is low, usually 0.06–0.08 yuan/W per year. It is suitable for customers who generate electricity as main business income.

Table 4 Table 5
Comparison of distributed PV financing costs. Source [50]. Economic and technological parameters of Distributed PV.
Financing modes Cost Installed capacity 1MW Loan ratio 70%

Bank loan ● PV loan: Reference to the bank loan benchmark interest Unit cost 6.5/W Loan period 15 years
rate for the same period Annual operation and 2% of investment cost Lending rates 5%
Equity financing ● Fixed increase and convertible bonds: diluted share maintenance cost
capital Performance ratio 80% Discount rate 8%
● Crowdfunding model: 6% + Degradation rate 3% in the first year, Years of 25 years
● Internet financial products: 6%–8% 0.7% per year operation
Bond financing ● ABS bonds: about ● Overseas low-cost funds: thereafter
4.8% 7% +
Other financing ● Financial leasing: ● Trust channel: 10% +
methods 10% ● REITs：5%–6%
yuan. Ft is the interest expenditures for t, in units of yuan. r is the
● Joint venture with the
fund:10% +
discount rate for t. T is the life span of the project, in units of year.

(4) IRR
remaining power get on grid. Formula (3) represents the revenue under
the mode of all electricity get on grid. Qt is the generation capacity for t, The IRR is obtained through the following equation:
in units of kWh/year. S1 is the national subsidy, in units of Yuan/kWh. T
S2 is the provincial and municipal subsidy, in units of Yuan/kWh. α is NPV (IRR) = ∑ (CI − CO)t (1 + IRR)−t = 0
the percentage of self use electricity to the annual electricity produc- t=0 (5)
tion, 0 < α≤ 1. P1 is the local electricity price, in units of Yuan/kWh. P2
CIt is the cash inflow for t and consists of annual revenue from dis-
is the desulfurization benchmark price, in units of Yuan/kWh. P3 is the
tributed PV power generation, in units of yuan. COt is the cash outflow
benchmark price, in units of Yuan/kWh.
for t and consists of initial investment and annual operating and
maintenance costs, in units of yuan.
(3) LCOE

LCOE refers to the ratio of total cost (investment + opera- 4.2. The analysis of LCOE
tion + maintenance + interest) to total power generation during the
25-year life cycle of a power plant. 4.2.1. LCOE analysis
According to the data of Tables 2 and 3, the LCOE of distributed PV
T
∑t = o (It + Ot + Mt + Ft )/(1 + r )t power in these three areas is 0.6790 yuan/kWh, 0.7905 yuan/kWh and
LCOE = T
∑t = 0 Qt /(1 + r )t (4) 0.8470 yuan/kWh respectively. The comparison between the LCOE in
the three areas and the local desulfurization coal price and the elec-
It is the initial investment cost for t, in units of yuan. Ot is the operation tricity price of industrial and commercial users is shown in Table 7.
costs for t, in units of yuan. Mt is the maintenance costs for t, in units of As can be seen from the table, the more abundant solar energy

Fig. 9. The cost reduction in each link.

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Z. Xin-gang and W. Zhen Renewable and Sustainable Energy Reviews 110 (2019) 53–64

Table 6
The basic situation of distributed PVs in three regions.
Solar resources The first category The second category The third category

Annual peak hours 1588 1364 1273

Desulfurization coal benchmark price (Yuan/kWh) 0.2829 0.3598 0.4155
PV power plant benchmark on-grid price (Yuan/kWh) 0.5 0.6 0.7
Business and industrial user subsidies (national + local) (Yuan/kWh) 0.32 0.32 + 0.3 0.32 + 0.25
Years of local subsidies – 5 5
Average Business and industrial electricity price (Yuan/kWh) 0.5637 0.9717 0.862

Table 7 According to the prediction of China Photovoltaic Industry

The comparison between the LCOE in the three areas. Association (CPIA), distributed PV unit investment costs will decrease
Hohhot Beijing Shanghai
to 3.01 Yuan/kWh in 2025 [51]. Combined with the improvement of
performance ratio, for distributed PV projects that do not require ca-
LCOE (Yuan/kWh) 0.6790 0.7905 0.8470 pital loans, it is expected that it will fully realize the grid parity in 2025.
Desulfurization coal price (Yuan/kWh) 0.2829 0.3598 0.4155 Therefore, the policy goal of achieving grid parity in 2025 can be
Electricity price of industrial and commercial users 0.5637 0.9717 0.862
(Yuan/kWh)
achieved.

resources are, the lower the LCOE is. We can also see that the LCOE of
distributed PV in Beijing and Shanghai is lower than electricity price of
local industrial and commercial users. It shows that the user side has
been able to access parity at the current level of technology and cost.
From the power generation side, the LCOE of distributed PV in the three
regions is higher than the local desulfurization coal price. It reveals that
under the current technology level, it is still difficult for distributed PV
to achieve parity in the power generation side.
4.2.2. Sensitivity analysis
The sensitivity analysis results for unit investment cost, perfor-
mance ratio, and loan interest rate are shown in Figs. 10–12.
The unit investment cost is reduced by 0.5 yuan/W, and the LCOE is
reduced by an average of 6.14%. For every 1% increase in performance
ratio, the LCOE is reduced by an average of 1.16%. The increase in
system efficiency is less effective in reducing the LCOE. For every 1%
increase in the loan interest rate, the LCOE increased by an average of
3.20%. Therefore, the unit investment cost has the greatest impact on
the LCOE, followed by the loan interest rate, and finally the perfor-
mance ratio. It is relatively difficult to reduce the unit investment cost
and improve the performance ratio, but it will bring about fundamental
changes. Reducing loan interest rate is the most direct measure to re-
duce the LCOE.
4.3. IRR
4.3.1. Comparison of IRR in three regions
(1) Due to the relatively low price of PV grid benchmarking in the first
and second solar energy resource areas, the IRR is less than 8% for
the 100% grid-connected distributed PV system in Beijing and
Hohhot, and the investment income of power plants is poor. In
addition, the IRR of all other distributed power stations is greater
than 8%. The results show that investing distributed PV in these
three areas has good economic benefits, and Beijing is the best one
of the three regions.
(2) Unlike the LCOE of distributed PV, IRR is not directly proportional
to the abundance of solar energy resources. Although solar energy
resources in Beijing and Shanghai are not as rich as those in
Hohhot, the IRR of distributed PV power stations in these two areas
are higher than those in Hohhot. In addition to the state subsidies,
Beijing and Shanghai also introduced local subsidies to promote the
development of distributed PV, to a certain extent, to make up for
the disadvantages of solar energy resources. This also shows that
government subsidies should be formulated according to geo-
graphical differences. For areas with low solar energy resources,
increasing local subsidies is the key to attract users to invest in
distributed PV.

Fig. 10. The impact of unit investment cost on LCOE.

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Z. Xin-gang and W. Zhen
Fig. 11. The impact of performance ratio on LCOE.
(3) For users, there is a large difference in the investment income be-
tween different grid-connected modes. The higher the proportion of
self-use is, the higher the IRR of distributed PV plants will be. Since
the current electricity price of industrial and commercial users is
higher than the desulfurization coal benchmark price, the elec-
tricity cost saved is higher than the electricity sales revenue. Under
the current policy, the project scale should be decided reasonably
according to the self-use electricity, and the project income should
be increased by increasing the self-use proportion as much as pos-
sible.
4.3.2. IRR analysis under the change of benchmark electricity price
Since China's official implementation of the PV power plant
benchmarking tariff policy in 2013, the on-grid electricity tariff has
been reduced year by year. In 2018, PV power plant benchmark prices
for PV primary, secondary, and tertiary resource regions were de-
termined to be 0.5, 0.6, and 0.7 yuan/kWh, respectively, compared
with 2017 down again [54]. Here, taking Shanghai's business and in-
dustry 100% grid connected distributed PV as an example, analysis of
the IRR changes under this trend.
Fig. 12. The impact of lending rates on LCOE.
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Renewable and Sustainable Energy Reviews 110 (2019) 53–64
As can be seen from Table 8, when the unit investment cost remains
unchanged, the benchmark price drops by 0.05 yuan/kWh, and the IRR
drops by 1.18% on average. Assuming that the benchmark price of the
third type of resource area will drop at the rate of 0.05 yuan/kWh per
year to 0.6 yuan/kWh by 2020, if the unit investment cost remains
unchanged, the IRR will be 5.97%, less than 8%. If the unit investment
cost can be reduced to less than 5.5 yuan/W, the IRR is 8.16%, which is
higher than 8%.
4.3.3. IRR analysis under the change of subsidy
In 2018, the subsidy standard for distributed PV projects was low-
ered in four years for the first time. The standard reduced to 0.37 yuan/
kWh, down 0.05 yuan/kWh from 2017 [54]. Here, taking Shanghai's
business and industry 50% self-use distributed PV as an example,
analysis of the IRR changes under this trend. The results are shown in
Table 9.
As can be seen from Table 9, when the unit investment cost remains
unchanged, government subsidies drop by 0.05 yuan/kWh while the
IRR drops by 0.93% on average. Even if the state unified subsidy is
cancelled, the IRR can reach 9.12% when the unit investment cost of
Z. Xin-gang and W. Zhen Renewable and Sustainable Energy Reviews 110 (2019) 53–64

Fig. 13. Comparison of IRR in three regions. From Fig. 13 we can see.

Table 8
The change of IRR under the drop of benchmark price.
Unit investment cost unit: yuan/W

6.5 6 5.5 5 4.5 4

Benchmark price unit：yuan/kWh 0.45 2.24% 3.09% 4.07% 5.22% 6.58% 8.25%
0.5 3.57% 4.48% 5.52% 6.75% 8.21% 10.01%
0.55 4.81% 5.77% 6.88% 8.18% 9.75% 11.68%
0.6 5.97% 6.98% 8.16% 9.55% 11.22% 13.27%
0.65 7.07% 8.14% 9.39% 10.86% 12.63% 14.82%
0.7（2018） 8.13% 9.25% 10.57% 12.12% 14.00% 16.32%

distributed PV system drops to 5.5 yuan/W, and the investment return
is still considerable. According to the conclusion of 4.3.1, the higher the
proportion of self-use is, the higher the IRR will be. Therefore, for
distributed PV power plants with a higher proportion of self-use, the
ability to withstand the decline of subsidies will be stronger. This shows
that the distributed PV system can get rid of the influence of policy and
realize the economy of the project by itself under the condition of
maintaining stable technological progress.
5. Conclusions and policy recommendations
5.1. Conclusion
There is no doubt that distributed photovoltaics will have invest-
ment value and competitiveness in the future. The key of the devel-
opment of distributed PV industry is shifting from fiscal subsidy to
market demand driven by parity. The advancement of distributed PV
technology and the reduction of costs will create new opportunities for
the development of the industry.
In Beijing and Shanghai, the LCOE of distributed PV power have
been lower than the local industrial and commercial user prices, in the
user side has achieved parity. In addition, distributed PV has shown
good economic benefits and high IRR in all three types of solar resource
areas. For distributed PV power plants with a higher proportion of self-
use, the economic benefits are better.
The decrease of unit investment cost plays a positive role in im-
proving the economic performance of distributed PV. For each 0.5
yuan/W decrease in unit investment cost, the average LCOE of elec-
tricity consumption dropped by 6.14%, and the average IRR increased
by 1.42%. With the reduction of unit investment cost, on one hand, the
LCOE of distributed PV will gradually approach the benchmark price of
desulfurized coal, and it is expected to achieve full parity in 2025. On
the other hand, distributed PV can get rid of the policy influence and
realize the economy of the project on its own.
5.2. Policy recommendations
By analyzing the external development environment of the

Table 9
The change of IRR under the drop of government subsidies.
Unit investment cost unit: yuan/W

6.5 6 5.5 5 4.5 4

Government subsidies unit: yuan/W 0 6.82% 7.89% 9.12% 10.57% 12.31% 14.47%
0.12 9.17% 10.38% 11.79% 13.46% 15.48% 17.97%
0.17 10.12% 11.39% 12.88% 14.64% 16.76% 19.40%
0.22 11.06% 12.39% 13.95% 15.80% 18.03% 20.81%
0.27 11.98% 13.38% 15.01% 16.95% 19.29% 22.21%
0.32（2018） 12.90% 14.35% 16.06% 18.08% 20.54% 23.59%

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Z. Xin-gang and W. Zhen Renewable and Sustainable Energy Reviews 110 (2019) 53–64

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