IEEE Power & Energy Magazine - May/June 2020 - 59

Market
✔✔ Gradual enhancement in electricity-market transac-

tions: With the expansion of PV power generation,
China's increasing electricity consumption will promote the construction of the retail power market.
✔✔ Huge distributed-PV market space: China's distributed PV systems constitute a low percentage of its energy-production mix, and the country's policy support is
gradually shifting to distributed PV systems that will
provide a broad domestic market in the future, especially for home-based systems. Hence, as the technology continues to advance, distributed PV systems will
likely exhibit major growth.
✔✔ Opportunities and risks for overseas market: Although overseas markets are large, international trade
is not encouraging for Chinese PV companies since
a trade war is beginning to spread and the free trade
concept is weakening; thus, some risks exist in the
international arena. Protection of foreign intellectualproperty rights could also slow the development of PV
technologies in China.

Subsidy-Rate Formulation and
Renewable Energy Regulation
Based on the previous analysis of the PV industry's situation
and future trends, it can be seen that the design of tariff and
subsidy rates is important for determining the investment in
and operation of renewable energy power generation. In this
section, we discuss key issues concerning renewable energy
price and subsidy-rate formulation and regulation, including
the formulation process of price policy, to provide references
for the future design of renewable energy prices and subsidy
rate mechanisms.

Formulating Price and Subsidy Rates
Based on international experience, the design of electricity
prices and renewable energy subsidies sends different signals
to power consumers and related industries and affects their
investment decisions and operation modes, which impacts
renewable energy development. A comprehensive formulation for tariffs and subsidy rates can be made to meet the
specific objectives of the policy.
The National Development and Reform Commission
and the National Energy Administration lead the process of
formulating prices and energy-subsidy rates. Although the
details vary by region, the overall process (as presented in
Figure 6) should be similar. The first two steps-reaching
consensus on the electricity-reform objective and selecting
the electricity-rate design to achieve that objective-form the
core and basis of the formulation process of renewable energy
generation price and subsidy rates. Although there are several
possible compensation strategies and methods, principles
for designing tariffs and subsidies can guide the effort and
ensure that it does not deviate from the expected results. An
important task for regulators is to decide how to follow the
may/june 2020

principles while balancing the interests of all parties. Several
factors should be considered while recognizing the tradeoffs:
✔✔ cost analysis
✔✔ results orientation
✔✔ consumer orientation
✔✔ policy transparency
✔✔ decision making
✔✔ fairness
✔✔ stability
✔✔ gradual implementation.
Ultimately, the regulator must properly incorporate these
principles and formulate electricity prices and subsidies
that benefit distributed-generation users as well as the overall grid system. After setting targets for reforming renewable energy generation prices, regulators need to propose
potential tariff designs and conduct a deep analysis. The
ideal subsidy mechanisms should be based on calculations
of the current market situation and evolve continuously
through time. Rates can be decomposed according to different components: attributes (such as electricity, capacity,
and transmission and distribution costs), time (the electricity
price varies), and space (electricity demand changes across
locations on the grid). Therefore, before choosing specific
electricity price and subsidy mechanisms, regulators must
clearly understand which components should be optimized.
The U.S. National Renewable Energy Laboratory compiled a list of electricity price reform options that have been
implemented or are being considered by regulators, including net billing, fixed charges, non-bypassable charges, minimum bills, time-varying rates, residential demand charges,
value of solar tariff, customer self-supply, and so forth. It
made a detailed comparison of the application scope, advantages, and challenges of those mechanisms to which regulators in China and other countries can refer in light of their
respective national conditions.
With the targets set and rate designs selected, a good foundation has been laid for the rate reform. Subsequent impact analysis, consultation, and implementation stages can be designed
to validate and continually improve the rate design. Therefore,
these three stages are related to multiple iterative optimizations of the rate design. Soliciting opinions is an important step
throughout the process, and considering the involves parties'
views is essential for successfully implementing reforms.

Suggestions for Rate Making and Supervision
Adopt a Gradual Rather than a Comprehensive
Reform-Implementation Path

Without the necessary foundation, rashly choosing an overly
detailed electricity-bill mechanism may not achieve the
desired results. It is also challenging for project developers
to adjust their business models and user purchase methods
to respond to the rapid development and implementation of
new electric rates. Financing distributed energy resource
projects becomes even more difficult when the electricity
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