Summary of Key Points
Recently, several provinces (including Shandong, Henan, and Guangxi) have successively abolished the "mechanism electricity price" subsidy for distributed photovoltaic (PV) projects in the industrial and commercial sector. This mechanism served as a safety net for PV projects: when market electricity prices were lower than the guaranteed price, the grid would make up the difference to ensure stable profits. With the removal of this safeguard, the profitability of new projects is now entirely dependent on market conditions. In the short term, this will lead to more cautious investment by companies and accelerate industry consolidation. However, in the long run, it will force the PV sector to shift from focusing on installation capacity to emphasizing sophisticated operations (such as better matching of electricity consumption, deploying energy storage, and engaging in power trading). The underlying reasons include increased pressure on grid infrastructure and rising costs borne by users.
Detailed Analysis
1. What exactly is the "safety net," and why is it being removed?
The mechanism electricity price acted like a guaranteed minimum income for PV projects. PV generation peaks during midday, but demand may be low, leading to potentially negative electricity prices. With this subsidy, the grid would compensate any shortfall, ensuring stable profits regardless of market conditions. The main reasons for its removal are:
- Grid capacity constraints: For example, distributed PV in Shandong accounts for two-thirds of the province's total PV capacity, and electricity distribution in 53 counties is limited (designated as "consumption red zones"). Excessive PV development could overwhelm the grid. Without the subsidy, companies will be more selective, prioritizing projects that can consume their own power to reduce grid strain.
- Rising costs for users: The cost of compensating for the difference in electricity prices was previously shared by all industrial and commercial users. In Shandong, these costs increased by 70% from January to April this year (from 0.0576 yuan/kWh to 0.0998 yuan/kWh), posing a growing financial burden on businesses.
2. Which regions have already implemented the changes, and how do their policies differ?
Provinces such as Shandong, Henan, Guangxi, Jiangxi, and Anhui have already introduced new regulations, with Ningxia and Hainan also tightening restrictions:
- Shandong (the fastest to act): For industrial and commercial PV projects launched after June this year, there is no longer any subsidy for electricity used internally; later, the policy was extended to non-residential users as well.
- Henan and Guangxi: No subsidy will be provided for industrial and commercial PV projects launched after June 2025.
- Jiangxi and Anhui: A grace period was granted, with the policy being phased out by January 2027.
- Ningxia and Hainan: Large-scale industrial and commercial PV projects are excluded from the subsidy program.
The overall trend is clear: the phase-out of subsidies for distributed PV in the industrial and commercial sector is inevitable.
3. Are companies panicked by this change?
In the short term, yes. Previously, profits were relatively predictable due to the subsidy; now, new projects face greater investment risks. Many companies may slow down their expansion efforts, and some smaller firms could be unable to withstand the challenges (accelerating industry consolidation). For instance, a project developer stated that investments will be more cautious, with no longer blind rush to secure projects.
4. Is this a good or bad thing in the long run?
In the long run, it is a positive development as it forces the PV sector to mature:
- The industry can no longer rely on government subsidies but must compete on actual performance. This means focusing on more efficient use of electricity (e.g., using generated power internally to reduce reliance on grid sales), deploying energy storage for profit from price differences between peak and off-peak times, and engaging in power trading.
- Companies that master these sophisticated operations will have a competitive advantage.
5. How will companies survive without the subsidy?
The industry has already devised several strategies:
- Maximizing internal consumption: For example, a company in Guangxi designed its PV system to match the factory's electricity demand, maintaining stable returns.
- Innovative cooperation models: Companies in Guangdong have introduced payment models based on actual power generation, allowing owners to pay for costs over time and reducing disputes.
- Energy storage as a standard: A PV project in Shandong generated 19 million yuan in the first half of the year through peak-valley trading and capacity compensation, highlighting the potential of energy storage as a new revenue source.
- Enhanced power trading capabilities: Larger projects are setting up their own trading teams to track spot prices, while smaller ones join aggregators or virtual power plants to participate in the market.
- Talent recruitment: The industry is now seeking professionals in finance and big data to predict electricity price trends and optimize sales strategies.
Conclusion
The abolition of the mechanism electricity price subsidy marks a shift from policy-driven to market-driven development for the PV sector. Although there will be short-term difficulties, it will lead to a healthier industry in the long run. Only companies that can adapt to market dynamics will thrive. For consumers, this means that future PV projects will focus more on practical benefits rather than blind expansion, which is beneficial for grid stability and cost control.