Activating New Momentum in the Solar Power Industry Through Diverse Governance Approaches

Perspectives | Diverse Governance Activates New Momentum in the Photovoltaic Industry

In recent years, the development of distributed solar photovoltaic (PV) technology in China has surged. Beginning in 2020, various companies significantly increased their investments in the solar sector, effectively driving rapid industry expansion. This trend has infused new energy into the optimization of the country’s energy structure and has provided strong support for achieving carbon reduction targets. However, behind this rapid growth, several issues have emerged, posing challenges to the sustainable development of the photovoltaic industry.

The rapid advancement of China’s photovoltaic industry can be attributed to a combination of policy support, technological progress, and market demand. Nevertheless, as the industry continues to grow, the limitations of existing development models have become increasingly apparent. Problems such as chaotic market competition, resource misallocation, and uncertain profit returns have begun to surface. These challenges stem largely from insufficient collaboration among stakeholders and a lack of binding mechanisms for interests. The photovoltaic sector involves multiple parties, including local governments, grid companies, investors, and end-users, each with differing demands. This disparity in interests has resulted in resource waste, inefficiencies, and unpredictable project returns.

During the 14th Five-Year Plan period, the photovoltaic industry is transitioning from a focus on scale expansion to one emphasizing quality enhancement. The key to this transition lies in how to coordinate the interests of multiple stakeholders and establish collaborative mechanisms. This article analyzes the differences and commonalities in stakeholder interests from an industry-wide perspective, drawing on international experiences to explore suitable pathways for the development of China’s photovoltaic sector and providing references for industry practitioners.

Analysis of Issues Arising from Overheated Industry Development

Unregulated market competition is compressing profit margins. State-owned enterprises, local state-owned companies, and private enterprises are fiercely competing in the distributed photovoltaic sector. In some project bidding processes, companies have resorted to underbidding each other to acquire project development rights. This competitive behavior not only shrinks their own profit margins but also leads to a decline in industry profitability, adversely affecting project quality and long-term operational benefits.

Resource misallocation results in inefficient competition. The distributed photovoltaic industry chain involves multiple stakeholders whose demands vary significantly. Local governments focus on economic growth and energy transition, while grid companies prioritize grid safety and capacity, and investors and end-users seek maximum returns and optimized services, respectively. This misalignment of interests leads to resource misallocation and inefficient competition.

The difficulties in project profitability undermine investor confidence. The gradual decrease in grid-connected electricity prices, the advancement of market trading mechanisms, and the strict grid access standards have increased the uncertainty around project profitability. Some companies lack long-term operational experience, resulting in varying project quality, which further weakens investor confidence.

Regulatory and technical standards lag behind, complicating industry oversight. Discussions have arisen about how to balance the development and regulation of distributed photovoltaics during the revision of the Renewable Energy Law of the People’s Republic of China and its supporting regulations by the end of 2023. The widespread nature of photovoltaic projects presents regulatory challenges, and the chaotic investment landscape in photovoltaics has led to environmental and safety hazards in some areas, raising societal concerns about the sustainability of solar energy. These doubts stem from the regulatory mechanisms being unable to keep pace with the rapid development of the industry, as well as negative cases resulting from profit-driven behaviors by certain enterprises. If these issues are not addressed, they may further impede the industry’s transition from scale expansion to quality enhancement.

Stakeholder Demands

As the rapid development of distributed photovoltaics continues, the interactions among various stakeholders have become increasingly complex, with their interests interwoven in a way that requires coordination and balance.

• Local Governments: Balancing development and risk prevention. Local governments bear multiple responsibilities in the development of distributed photovoltaics. On one hand, they actively promote distributed solar projects, particularly rooftop solar initiatives, hoping to drive local economic growth and achieve energy transition. On the other hand, they maintain high vigilance regarding safety risks during project construction, long-term operational capabilities, and the rights of rooftop owners, gradually increasing regulatory oversight.
• Grid Companies: Actively addressing challenges to ensure industry development. Grid companies face technical and management challenges during the integration of distributed photovoltaics but consistently promote coordinated development between photovoltaics and the grid. They are investing in and upgrading grid infrastructure to enhance transmission and capacity, ensuring the smooth integration of solar power into the grid. Grid companies have established strict grid interconnection standards and processes to guarantee safe and stable grid operations.
• Other Stakeholders: Diverse demands collectively promote industry development. Investors seek stable returns and manageable risks, placing greater emphasis on project assessments and risk analyses. End-users desire stable electricity and quality services, with a strong focus on project quality and operational service standards. While there are commonalities in the demands of various stakeholders, there are also differences that require coordination.

To facilitate better collaborative development among all parties, it is essential to implement policy guidance, technological innovation, and multi-party cooperation, creating more robust collaborative mechanisms to achieve mutual benefits and harmonious development.

European Approaches to Resolving Conflicts and Experiences

In the early stages of distributed photovoltaic development, Europe also faced challenges such as resource misallocation and grid impacts. The core logic of their solutions is framed as “diverse co-governance + technological support,” with some differences in specific pathways:

• Germany’s Government-Led Co-Governance Model: Taking the community solar project in Bavaria as an example, local governments participate in project construction through policy incentives and limited funding, creating a multi-stakeholder equity structure involving “government + residents/enterprises + power companies.” Power companies leverage their technical expertise and operational experience to ensure efficient project operation, while local residents or enterprises contribute by investing in rooftops or funds, forming a community of shared risks. The success of this model relies on standardized technical specifications and dynamic subsidy mechanisms that ensure project quality while maintaining market vitality.
• Denmark’s Community-Driven Cooperative Model: Denmark widely employs resident cooperative models in photovoltaic development, exemplified by the solar project on Samsø Island, where local residents purchase shares to become project stakeholders, deeply participating in decision-making and profit distribution. The Danish government provides tax incentives and low-interest loans. The co-op manages operations independently, distributing profits based on shares, forming a self-organized ecosystem empowered by residents and supported by policy. This model is underpinned by stringent building energy efficiency regulations and a tradition of community energy autonomy, embedding photovoltaic development deeply into the local economic network.

Lessons to Be Learned:

• Interest Binding Mechanisms: Both Germany and Denmark emphasize the participation of diverse stakeholders, achieving shared interests through equity design. Germany focuses on multi-party contracts among government, enterprises, and residents, while Denmark strengthens cooperative ties among residents, providing a reference for exploring “enterprise + community” mixed ownership models in China.
• Proactive Technological Governance: Germany synchronizes the upgrading of building energy efficiency standards with photovoltaic technical standards, while Denmark utilizes smart meter systems for real-time interaction between distributed power sources and the grid, confirming the necessity of “technological standards preceding scale expansion.” Strict technical standards and regulatory mechanisms ensure efficient project operation and grid safety.
• Innovative Policy Tools: Germany guides community photovoltaic development through a combination of “low-interest loans + tax relief” policies, while Denmark supports cooperative models with funding. This combination of government guidance and market-driven policies is worth emulating.

China’s Policy Environment and Relevant Trends

High-Quality Development Policy Direction for New Energy: In May 2022, the National Development and Reform Commission and the National Energy Administration issued the “Implementation Plan for Promoting High-Quality Development of New Energy in the New Era,” which calls for innovative models in the development and utilization of new energy. The plan encourages local governments to support farmers in building household solar projects on their own rooftops and to cultivate new market entities like rural energy cooperatives. In industrial and building applications, it advocates accelerating the development of new energy projects in suitable industrial enterprises and parks and supports the construction of integrated projects that encompass green microgrids and energy storage solutions.

External Situations Requiring Adaptation: In the context of intensifying global economic, technological, trade, and financial competition, the European Union has introduced carbon tariff barriers for international trade, placing external pressure on China’s export enterprises and compelling the photovoltaic industry to adjust its development and utilization models. The EU’s “New Battery and Waste Battery Directive” mandates that, starting July 2024, all power and industrial batteries entering the EU market must declare their full lifecycle carbon footprint and gradually establish carbon footprint thresholds, with non-compliance leading to market entry restrictions. The core impact of this policy lies in the strict accounting of the carbon footprints associated with electricity usage. The EU recognizes only two calculation models: “national average power consumption mix” and “directly connected green electricity,” explicitly excluding the possibility of green certificate offsets. This implies that if Chinese battery export enterprises cannot directly utilize green electricity, their carbon footprint accounting will forcibly rely on China’s overall power carbon emission factors, which are significantly higher than those of European countries. The disparity in carbon emission factors will increase the carbon tariff costs for Chinese battery export enterprises.

The EU’s recognized direct supply of green electricity must meet specific conditions: first, the energy source must be limited to wind and solar power, excluding hydropower due to ecological controversies; second, traceability is essential, meaning power sources must be achieved through physical direct connections, excluding “wall-sharing power sales” and green certificate certifications. This policy compels Chinese battery export enterprises to adopt direct supply models of green electricity to enhance the green competitiveness of their products. Additionally, it necessitates that China’s photovoltaic industry proactively respond to carbon tariff barriers in international trade, exploring green trade models that comply with international rules.