Challenges and Risks in the Surge of Distributed Solar Power Installations in China

With the new year, the updated management measures for distributed photovoltaic (PV) systems and Document No. 136 have reignited the long-dormant rush for distributed solar installations. Similar to previous instances, issues such as component cancellations and price hikes are rampant. However, what distinguishes this current wave is its widespread impact across all sectors, including residential, commercial, and utility-scale projects, leading to more severe irregularities.

In particular, the distributed photovoltaic sector has seen an overwhelming push for installations. Although the policy intended to provide a smooth transition for existing projects, the comprehensive entry of new energy into the market has resulted in a frenzy for nearly all distributed solar options. Many investors have expressed frustration, stating, “The current rush for distributed photovoltaic installations is akin to ‘telecom fraud’; every step—from procurement to construction to grid connection—is fraught with exploitation.”

Passive Exploitation Amidst the Rush

Since the issuance of the new management measures for distributed photovoltaic systems, the rush for installations has quickly gained momentum, initially limited to projects with full-grid connection models. Following the release of Document No. 136, the requirements for entering the distributed photovoltaic market intensified, and expectations of declining electricity prices became widespread. Consequently, “nearly all distributed photovoltaic projects are now being rushed.”

In March, after the Shandong Solar Exhibition, the rush for installations began to reveal a series of anomalies, particularly regarding component pricing, which reportedly increased by 5 cents per watt daily. Prices surged from approximately 0.65 yuan per watt to 0.8 yuan, with contract cancellations becoming commonplace—“almost every order is subject to renegotiation.” One investor noted that they signed a full payment contract at 0.69 yuan per watt with a leading component manufacturer, only to be informed the next day that the price had risen to 0.74 yuan. Some manufacturers even invalidated morning quotes by the afternoon, showing a blatant disregard for contractual agreements.

Another investor revealed that although their ordered components had arrived at the project site, they were abruptly informed that the components had been sold at a higher price to another project before they could even be unloaded. Furthermore, some companies have started selling “counterfeit” components. Several major brands, including Trina, Aiko, GCL, and Chint, have issued warnings about unauthorized sales of suspected brand components through unofficial channels. Insiders suggest that this may be due to OEM manufacturers engaging in “half production, half sale” practices, which could result in inadequate after-sales service if quality issues arise.

Aside from components, irregularities were also evident in the inverter sector. Price increases were secondary to the fact that certain regions required each inverter to undergo joint debugging tests by designated units before grid connection. Due to limited testing capabilities, inverters awaiting debugging piled up, while investors involved in the rush could not afford the delays, leading to a black market for expedited testing.

Moreover, it has been reported that during these joint debugging tests, technical and quality issues often led to frequent inverter failures. Additionally, problems related to the procurement of distributed system components and construction practices have also emerged. One investor noted significant discrepancies in the delivery time of ordered solar components, with some products showing signs of substandard quality. For example, while the required weight of components was about 950 grams, the actual delivered weight was only around 830 grams.

On the construction side, workers have demanded multiple wage increases within a single day. Some EPC companies reported that the rush for installations has created a high demand for skilled labor, driving up costs. In some projects, due to tight schedules, construction standards have been lowered, and inexperienced teams have been hired to meet deadlines. The compression of normal construction timelines, coupled with various potential equipment issues, could jeopardize the overall quality of solar plants, ultimately affecting the industry as a whole.

In light of the chaotic situation and potential quality risks associated with the distributed photovoltaic rush, some investors are reevaluating the necessity and economic viability of these projects. As new distributed photovoltaic management policies are being rolled out in various provinces and cities, the enthusiasm for rushing installations is gradually waning. Some investors mentioned that they have completed their projects and view the remaining opportunities as too risky, signaling a return to more rational investment behavior in the industry.

The End of the Rush and Price Corrections

Essentially, the core of this rush has revolved around changes in the commercial photovoltaic grid connection model and the delineation of new and old pricing policies for distributed solar. Recently, with the release of draft management measures for distributed photovoltaic systems in several provinces, some areas have removed restrictions on the self-use ratio for commercial use, thereby reducing the urgency for rushing installations.

As of now, provinces such as Guangdong, Jiangsu, Jilin, Ningxia, and Guizhou have issued new management measures or drafts for distributed photovoltaic systems. The lack of restrictions on self-use ratios for general commercial use in Guangdong and Jiangsu has been widely welcomed by local investors, diminishing the urgency for installations.

It is noteworthy that both Jiangsu and Guangdong exceeded 10 GW of newly installed distributed photovoltaic capacity last year. As leading markets for distributed solar in China, the unrestricted self-use ratio reflects optimism regarding grid support, absorption capacity, and green electricity demand in these provinces. However, as the scale of distributed installations continues to grow, there may be a future increase in self-use ratios. While there is currently no need to rush installations, expediting project implementation and grid connection remains essential.

In addition to policy guidance, rising prices set by major photovoltaic equipment manufacturers have significantly increased project investment costs. Coupled with quality risks from rushed installations, some investors believe that potential profits from rushing installations may be consumed by various parties. One investor noted that current payment conditions are unfavorable; previously, partial payments were made upon project initiation, but now full payment is only provided after grid connection, making it difficult to bear financial risks.

As April progresses, photovoltaic component prices have begun to decline. However, some investors report that certain manufacturers are still attempting to leverage the rush sentiment to inflate prices. Another investor indicated that in a recent procurement order, a manufacturer required a supplementary agreement stipulating that deliveries in mid-April would be non-refundable. This sentiment was echoed by intermediaries, who confirmed that following the Qingming Festival, the combination of weak market demand and increased production capacity has led to a decrease in component prices.

While the rush for commercial installations returns to a more rational state, the residential sector continues to experience ongoing rushes. However, as deadlines approach, some dealers have reported that certain companies have ceased taking new orders to avoid associated risks. Conversely, others are still actively pursuing related business, leading to some market fragmentation.

Overall, the essence of the rush is to safeguard project returns. However, in the face of skyrocketing costs across various segments and quality risks—alongside the accelerated pace of distributed solar entering the spot market—the actual returns from rushed projects remain to be validated by operational data post-installation. Undoubtedly, the investment and development trends in distributed photovoltaic projects, as well as the market landscape, are undergoing significant changes.