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      Global Energy Interconnection

      Volume 1, Issue 2, Apr 2018, Pages 162-171
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      Study on business models of distributed generation in China

      Hui Yu1,4 ,Bowen Hong2 ,Wenpeng Luan1 ,Bibin Huang2 ,Yordanos Kassa Semero3 ,Abinet Tesfaye Eseye3
      ( 1. China Electric Power Research Institute, Beijing 100192, China , 2. State Grid Energy Research Institute, Beijing 102209, China , 3. North Chian Electric Power University, Beijing 102206, China , 4. Zhongguancun Open Laboratory of Distributed Generation and Microgrids Technology, Beijing 100085, China )

      Abstract

      Along with the implementation of electricity sales-side reform and incremental power distribution investment liberalization under China’s new round of electricity market reform, the main subjects of distributed generation investment,construction, and operations have become more various, and the approaches as well as the ways that distributed generation takes part in the market have been more flexible. How to operate distributed generation economically and efficiently in this market environment has become an urgent issue to be addressed. Based on the domestic development situation of China’s distributed generation, this paper introduces typical existing business models of distributed generation,and elaborates the correlation between electricity market reform and business models of distributed generation in depth in combination with the contents of electricity market reform. At last, several business models of distributed generation which are feasible to be implemented in China have been proposed under the new electricity market reform based on successful international distributed generation operation experiences in the terms of stimulating stakeholders’ participation in the investment and operations of distributed generation. Characteristics of these recommended models are compared and analyzed as well.

      1 Introduction

      With great emphasis on the construction and development of distributed generations (DGs), China has introduced supporting policies and put forward quantitative development goals. China’s 13th Electricity Development Five Year Plan clearly states that distributed generation should be actively promoted to encourage the efficient use of nearby energy sources, and distributed PV power generation and “Photovoltaic plus” comprehensive utilization projects should be advanced in all aspects. By 2020, the installed capacity of distributed PV generations is expected to reach more than 60GW [1-2]. Backed by relevant favorable state policies, China’s distributed power industry has shown a rapid development trend of “wide coverage and high-density regional power grid integration”.

      The deepening of the electricity sales-side reform in China’s electricity market and liberalization of incremental distribution investment business has presented unprecedented opportunities for market-oriented operations of distributed generation [3]. Given current power generation technologies and operation and maintenance(O&M) situations, distributed power generation and operations are costly. In this context, weak competitiveness has become an increasingly prominent problem in the market environment where resources are allocated based on prices. Hence, how to operate distributed generation economically and efficiently in this market environment has become an urgent issue to be addressed.

      Some scholars have studied distributed generation business models through the analysis of costs and benefits under different investment and operation conditions of distributed generation and the design of a market trading mechanism. Papers[4-5] analyze economic benefits of relevant stakeholders under different investment patterns based on how these investment patterns are implemented.Papers[6-7] analyze profit/cost ratios of distributed PV power generation under three business models: grid buyout, self-generation of power for self-consumption,and feed back into grid after self-consumption. They also discuss comprehensive benefits of distributed generation projects for different investment entities. The paper[8]builds a life-cycle cost/benefit model for distributed PV power generation and compares economic benefits of investors, users and operators under different combinations of investment entities and operating entities. With respect to market-oriented operations, some scholars have studied the organization structure and operation mechanism design of the electricity sales market[9], decisions for the optimization of electricity purchases and sales among market participants[10], and the organization structure and operation strategies of the electricity sales market where new energy is used for generation[11,12]. The above research either simplifies external market trading methods and focuses instead on stakeholders of distributed generation projects for cost-effectiveness analysis, or aims at operation strategies of distributed generation projects based on self-designed electricity market trading methods.The research, however, mentions nothing about distributed generation business models based on actual electricity price policies and the current electricity market operation mechanism.

      This paper elaborates the role of a new round of the electricity market reform in promoting the innovation of distributed generation business models based on the systematic analysis of the development and operational status of distributed generation in China. Built on the successful operation cases of distributed generation in some countries, the paper introduces feasible distributed generation business models under China’s new electricity market mechanism from the perspective of the motivation of market players to participate in the investment and operations of distributed generation. This paper compares and analyzes the differences of various business models in terms of electricity trading methods, moneymaking ways,financing difficulty and expected returns. It can provide useful guidance for the selection of business models for stakeholders of distribution generation projects such as investors, constructors and operators.

      2 Analysis of the current state of China’s distributed generation

      2.1 Current state of China’s distributed generation

      At present, distributed generation in China mainly takes the form of distributed PV power generation, mostly in central and eastern China [13]. In 2016, the cumulative distributed PV installed capacity of Zhejiang, Jiangsu,Shandong, Anhui, Jiangxi and Fujian provinces accounted for 62% of China’s total distributed PV installed capacity.The distributed PV installed capacity of some regions (such as Jinzhai County in Anhui) was far greater than the local load, showing a regional high PV penetration. The year 2016 also saw an explosive growth in the number of the distributed PV households in China with a rapid decline of the distributed PV installed capacity per household on average from nearly a kilowatt in 2013 to tens of watts in 2016.

      Distributed PV power generation demonstration areas and PV poverty alleviation are the key applications of distributed PV generations in China. These demonstration areas are mainly located in urban industrial parks where rooftop PV systems are used more often. PV poverty alleviation is mostly targeted at rural areas mainly through village collective power stations and ground-based PV power stations, which has become a new driving force for China’s distributed PV power generation development at the current stage.

      The 13th Renewable Energy Development Five Year Plan and the 13th Solar Energy Development Five Year Plan clearly states that China will promote the distributed PV power generation and “Photovoltaic plus” comprehensive utilization projects in all areas and advance the development of new energy-based microgrid demonstration projects that focus on renewable energy supplemented by distributed generation. In the future, the large-scale industrialization of distributed generations requires the support of an effective commercial operation model.

      2.2 Typical business models of China’s distributed generation

      Distributed generation business models are directly related to the profit distribution of various parties engaging in distributed generation projects, which concerns the competitiveness and development pattern of the distributed generation industry in the market environment.

      Distributed generation business models can be analyzed from two aspects. One aspect is the flow and distribution path of electricity from distributed generation facilities,that is, the distribution of electricity flows. This means checking whether electricity from distributed generation facilities is supplied to other users in the grid and how the electricity flows. The other aspect is the economic structure of distributed generation projects, that is, the distribution of cash flows. This mainly involves the property relations between distributed generation project investors (i.e. project owners) and electricity users at places where distributed generation facilities are constructed (local load), as well as electricity buyers and sellers and business approaches. This paper analyzes China’s distributed generation business models based on the analysis of mainly electricity flows and subordinately fund flows.

      Most of China’s distributed PV power generation projects adopted the business model of grid buyout in their earliest days. Since 2013, China’s PV generation investment subsidy policy based on installed capacity has been changed to a feed-in tariff based on generated energy whose rate is RMB 0.42/kWh. Meanwhile, the selfconsumed electricity of distributed PV power generation projects is exempt from various funds and surcharges levied with electricity prices, system reserve capacity fees, and other related grid connection service charges. Changes in national policies have further encouraged the development of the distributed generation business model of the selfgeneration of power for self-consumption.

      2.2.1 Grid buyout

      Fig. 1 Schematic diagram of the grid buyout business model

      Under the business model of grid buyout, all the electricity produced from distributed generation projects is sold to power enterprises at feed-in tariffs and enjoys the corresponding state subsidies. Users pay electricity bills to power enterprises based on local sales catalog prices. As shown in Fig. 1, there is no business settlement relationship between project investors and users.

      China’s early rooftop PV projects, along with distributed PV projects that enjoy local feed-in tariffs,mostly adopt this business model. Under this model, project revenue is expected to be stable as it comes from both the sales revenue and state subsidies. Given this, the financing of such projects is less difficult, facilitating their investment and development.

      2.2.2 Feeding of self-generated power into the grid after self-consumption

      Under the business model of the feeding of selfgenerated power into the grid after self-consumption as shown in Fig. 2, the electricity produced from distributed generation projects is first supplied to local users at project sites and the surplus electricity, if any, is purchased by power enterprises at benchmark coal-fired power tariffs.Any insufficient electricity is provided by the public power grid. Electricity users pay electricity charges to power enterprises based on local sales catalog prices.

      Fig. 2 Schematic diagram of the business model of the feeding of self-generated power into the grid after selfconsumption

      Under this business model, distributed generation project owners and local users at project sites can be the same legal entities or different legal entities adopting the contract energy management mode.

      Commercial and large industrial users paying higher electricity prices benefit a lot from this business model where the electricity produced from distributed generation projects is mainly used locally.

      In the business model, the only differences between the contract energy management mode and user selfbuilding mode are rooftop rental charges and a small proportion of costs given the reduced investment thanks to the availability of professional services. Considering the possibility of running into the contract fulfillment problem of users who will be charged energy-saving service fees by investors, and using less power due to poor management, a project under the contract energy management mode runs a dramatically high risk of achieving expected returns and has difficulty in financing.

      One of the cases of the feeding of self-generated power into the grid after self-consumption is that all the electricity produced by distributed generation projects is selfconsumed with no electricity delivered to the public power grid. In this case, there is no electricity flow between DGs and distribution networks, as shown in Fig. 2. This model is mostly found in distributed natural gas combined cold-heatand-power (CCHP) generation projects built by industrial and commercial users. Natural gas units typically operate during periods when commercial electricity prices are high,such as from seven in the morning to seven in the evening.In addition to electricity, these units supply hot water or steam. Commercial and large industrial users paying higher electricity prices benefit a lot from this business model where all the electricity produced from distributed generation projects is self-consumed. In the business model,reverse power protection is usually installed between the distributed generation system and the public power grid.

      2.3 Problems in China’s distributed generation operations

      At present, most distributed generation users adopting the contract energy management mode are private enterprises. Subject to economic situations and business conditions, the long-term stability of user load cannot be guaranteed. Distributed generation project owners are generally worried about future contractual performance risks such as arrears in electricity bills and user changes.This leads to unstable expected returns on a distributed generation project under this business model and reduces the attractiveness of investment. This will further cause banks to be cautious about the financing of distributed generation projects.

      Meanwhile, residential users generally lack the awareness of the maintenance of distributed generation facilities. It is common to see decreased power generation efficiency and reduced incomes in the absence of professional O&M guidance. Moreover, residents’ longterm benefits cannot be guaranteed as they individually bear great investment risks and some insurance is aimed only at natural disasters such as rain, snow and hail given the PV payback period of more than five years.

      There are many inevitable problems in the future development of distributed generation in China. Regions with sufficient roofs have small electrical load while cities without enough rooftops have centralized, heavy electrical load. Other problems include the difficulty in loan financing,unstable expected returns, and inadequate O&M. How to operate distributed generation economically and efficiently in the market environment has become an urgent problem to be solved. This calls for an effective business model to promote the local consumption of electricity produced by distributed generation facilities and solve such problems as difficulty in initial investment and unprofessional O&M,thereby achieving the sustainable development of the distributed generation industry in the market environment.

      3 Implications to China’s distributed generation business models

      China can explore its own sustainable business models of distributed generation mainly in the following aspects by learning from foreign experience in distributed PV business operations:

      (1) Innovating business models to ensure a stable income.

      The policy of “giving a priority to self-consumption,feeding the surplus power into the grid and subsidizing all generated electricity” can help reduce the amount of state subsidies to a certain extent. This business model,however, also has the problem of unstable expected returns,dampening efforts to promote distributed PV development.According to the foreign experience, long-term, predictable and stable electricity sales revenue guarantees the ROI of distributed PV power generation.

      The large-scale development of distributed PV power generation in Germany is based on unified sold to the grid,fixed electricity prices, and settlement with the power grid.Its business model tends to be “the grid buyout and separate settlement.” That means feeding all the electricity generated from distributed PV power generation facilities into the grid, consuming electricity locally by the power grid, and making separate settlement for the amount of electricity feed back to the grid and bought from the grid. In this way,distributed PV project owners’ revenue are immune from electricity consumption of users, ensuring the predictability and stability of owners’ returns.

      The America’s well-established credit rating system ensures that only industrial and commercial enterprise users with high credit ratings and steady operations can take the role of long-term electricity buyers, greatly lowering PV electricity settlement risks. PV electricity fed into the grid can be sold at retail tariffs, avoiding the impact of the uncertainty of end users’ electricity consumption capabilities on the income from PV power generation investment.

      (2) Focusing on users’ needs to promote universal participation.

      From the user’s point of view, users have to provide roofs for distributed PV installations while paying electricity charges to distributed PV project investors. They should be motivated in order to participate in distributed PV installations. Therefore, in addition to economic incentives and income protection for project investors,attention should also be paid to how to meet user needs and encourage more users to proactively take part in distributed PV projects during the formulation and improvement of policies. It is suggested to look for paradigmatic business models, specify the rules for the operations, subsidization and settlement of distributed PV projects, and define relevant responsibilities so as to ensure the sharing of benefits by both project investors and users and stimulate users’ enthusiasm.

      4 Distributed generation business models under China’s electricity market mechanism

      4.1 Correlational analysis of a new round of the electricity market reform and distributed generation operations

      In March 2015, the CPC Central Committee and State Council issued the Several Opinions on Further Deepening the Reform of the Electric Power System (Zhong Fa [2015]No. 9) (hereinafter referred to as “No. 9 Document”),kicking off a new round of electricity market reform,including the transmission and distribution price reform,electricity sales-side reform and the liberalization of incremental power distribution business.

      After transmission and distribution price reform,transmission and distribution prices become relatively fixed,and fluctuations in generation prices will directly influence sales prices, strengthening the relationship between power generation and sales markets. The market will be more sensitive to conditions such as power sources and load due to difference in power generation costs, wheeling charges and sales prices. This is conducive to the optimization of power supply configurations and arrangement by virtue of the invisible hand of the market. Furthermore, distributed generation owners will be better positioned to participate in the competition among high-quality users thanks to their flexible distribution advantages.

      The power sales-side reform allows electricity sellers to choose trading institutions across provinces or regions on their own and sell electricity within multiple distribution zones in a province. In theory, policies allow distributed generation owners to participate in market trading through electricity sellers. Considering potential safety hazards of power supply transferring, the direct selling of distributed electricity is rarely seen. In the long run, the direct selling of distributed power may become an important new business model with the deepening of the electricity salesside reform and the gradual formation of the distributed generation market trading platform.

      With regard to the liberalization of incremental power distribution investment, current policies encourage newly built economic development zones to establish an electricity distribution company engaging in electricity distribution and sales. If incremental distribution operators provide both electricity sales and distributed generation business, generation, distribution and sales will be integrated to adopt the business model of the regional sales of distributed power. No. 9 Document calls for fostering market players in a number of ways. It allows users with distributed generation facilities or microgrids to participate in electricity trading while still requiring distributed generation to adopt the business model of selfgeneration of power for self-consumption, feed back into grid after self-consumption, and power grid adjustment.The Implementing Opinions on the Promotion of the Electricity Sales-Side Reform, the supporting document of No. 9 Document, proposes that users with distributed generation facilities or microgrids may commission electricity sellers to purchase and sell electricity. According to No. 9 Document and its supporting document, the integrated operations of generation, distribution, and sales will take shape through the construction and operations of distributed generation facilities and power grids for energy supply to users in incremental distribution areas.In May 2016, the National Energy Administration issued the Reply on Supporting the Participation of the Shenzhen International Low Carbon City Distributed Energy Project in the Electricity Distribution and Sales Business.This project is the first distributed energy project with its distribution and sales business approved by the National Energy Administration.

      4.2 Feasible distributed generation business model under a new round of the electricity market reform

      In a sense, the essence of innovation in business models is the process with a constant number of new players and new businesses. Based on the business model of grid buyout, self-generation of power for self-consumption will be possible if users are allowed to invest in power sources and the contract energy management approach will be further available if third parties are permitted to do the same. The direct electricity sales model will be possible if distributed generation owners or third parties are allowed to sell electricity. The regional sales model will be formed if the electricity distribution and sales business is permitted.The entry of new players is closely related to the electricity market reform. Currently, the electricity sales-side reform and incremental distribution investment reform are being piloted and rapidly advanced. Distributed generation players’ motivation to take part in direct and regional electricity sales is also on the rise.

      4.2.1 Direct electricity sales model

      The direct electricity sales model mainly refers to a model where electricity produced from distributed generation facilities is given first to local users for their own consumption, and the surplus power is directly sold to neighboring or remote third-party users, as shown in Fig. 3. There are now mainly two possible implementation methods: “user investment, self-generation for selfconsumption, and direct sales of the surplus power” and“third-party investment, contract energy management, and direct sales of the surplus power.” Their differences lie in whether project investors and local users are the same legal entities.

      Fig. 3 Schematic diagram of the direct electricity sales business model

      In terms of project revenue, the surplus electricity fed into the grid adopts agreed transaction prices so its prices are usually higher than the benchmark coal-fired power tariffs. To increase revenue from local electricity consumption, users or third parties are highly motivated to make investment. Third party investment, however, has risks such as the collection of energy-saving service fees and users’ reduction in production. With the standardization of future energy-saving services, the business model of“third-party investment, contract energy management, and direct sales of the surplus power” will be the focus of future operations if direct selling is allowed. This will greatly promote the development of distributed generation.

      As for settlement methods, government subsidies are transferred from power grid enterprises to distributed generation project owners. Users pay fees for wanted electricity to power enterprises based on local sales catalog prices. Power enterprises collect wheeling charges, and sell local surplus electricity at agreed transaction prices (usually higher than benchmark coal-fired power tariffs) to thirdparty users.

      In the direct electricity sales model, users or third parties are motivated to make investment because of higher income from surplus power. Where direct selling is allowed, the direct sales model using the contract energy management method may be the focus of future operations. Third-party investment may have financial risks such as the collection of energy-saving service fees and users’ reduction in production. Meanwhile, the settlement relationship is complicated. Power grid enterprises charge users’ fees for the electricity consumption from the power grid, and transfer subsidies to power generation investors.4.2.2 Regional electricity sales model

      The regional electricity sales model involves relationships of players at two levels. Firstly, if an electricity seller exists in a region, there is a settlement relationship between the electricity seller and a power gird enterprise. Secondly, if a distributed generation project owner exists in a region, the owner may be a regional electricity seller, user, or third-party investor, and sells electricity to the regional electricity seller. If the owner is a regional electricity seller, the business model is similar to the microgrid operation model and is a special regional electricity sales model. The widespread of this model is a result of the promotion of the electricity market reform and the premise is the liberalization of electricity distribution and sales business.

      As for the settlement method, power grid enterprises do not settle electricity charges directly with distributed generation project owners , and may transfer subsidies only to distributed generation project owners, as shown in Fig. 4. In this model, the electricity produced by distributed generation facilities is used first for self-consumption, and the surplus electricity is sold to regional electricity sellers at state-specified tariffs. Regional electricity sellers pay for the surplus electricity to distributed generation project investors at benchmark coal-fired power tariffs (or agreed tariffs). Electricity users pay electricity purchase costs to regional electricity sellers based on local power selling tariffs (or agreed electricity prices).

      Fig. 4 Schematic diagram of the regional electricity sales business model

      The regional electricity sales model does not involve the risk of difficulty in collecting electricity charges and energy-saving service fees since all the electricity of regional users comes from a regional electricity seller.

      5 Comparative analysis of distributed generation business models

      Given electricity sales-side reform and the liberalization of incremental distribution investment business under a new round of electricity market reform, direct electricity sales and regional electricity sales models may emerge from the existing distributed generation business models of grid buyout and self-generation of power for self-consumption and feed back into grid after self-consumption. In the market environment, different business models vary in terms of the settlement of electricity charges, allocation of subsidies, difficulty in financing, and risks of returns.

      At present, on-grid electricity under the business model of grid buyout adopts feed-in tariffs regularly released by the central government. The country is divided into three types of regions. Feed-in tariffs for I, II and III types of regions released in 2017 are RMB 0.65 /kWh, RMB 0.75/kWh, and RMB 0.85/kWh respectively, as shown in Fig. 5. For example, the feed-in tariff is RMB 0.75/kWh in Beijing, an II type region, under the business model of grid buyout.

      Fig. 5 Feed-in tariffs for different regions

      Under the business model of the feeding of selfgenerated power into the grid after self-consumption, the price of self-consumed electricity can be expressed as:

      C2 refers to the price of self-consumed electricity; Cuser refers to the user electricity price; Cs-subsidy refers to the state subsidy, RMB 0.42/kWh; Cl-subsidy refers to the local subsidy.

      The price of on-grid electricity can be expressed as:

      C3 refers to the price of on-grid electricity; CLBC refers to the local benchmark coal-fired power tariff; Cs-subsidy refers to the state subsidy , RMB 0.42/kWh; Cl-subsidy refers to the local subsidy.

      In 2017, benchmark coal-fired power tariffs throughout China range from RMB 0.25 /kWh to RMB 0.46/kWh.Power selling tariffs of residential and commercial users across the country are also slightly different.

      Take Beijing as an example. In 2017, the benchmark coal-fired power tariff is RMB 0.359/kWh. Tiers 1, 2,and 3 residential electricity prices there are RMB 0.4883/kWh, RMB 0.5283/kWh, and RMB 0.7883/kWh. Ordinary residents’ monthly electricity consumption is generally no more than 240 kWhs , so tier 1 electricity price will apply. If these residential users choose the feeding of selfgenerated power into the grid after self-consumption, the price of self-consumed electricity is equivalent to RMB 0.9083 /kWh (RMB 0.4883/kWh + RMB 0.42/kWh) and the price of surplus electricity fed into the grid is RMB 0.779/kWh (RMB 0.359/kWh + RMB 0.42/kWh) without considering the local subsidy. Both prices are higher than the electricity price under the business model of grid buyout. In Beijing, non-residential users adopt time-ofuse pricing. For commercial users using the voltage of less than 1 kV, electricity prices in tip, peak, flat, and valley periods are RMB 1.5295/kWh, RMB 1.4004/kWh, RMB 0.8745/kWh, and RMB 0.3748/kWh respectively. The average daily electricity price is around RMB 1/kWh.If these non-residential users choose the feeding of selfgenerated power into the grid after self-consumption, the price of self-consumed electricity is equivalent to RMB 1.42/kWh (RMB 1/kWh + RMB 0.42/kWh) and the price of surplus electricity fed into the grid is RMB 0.779/kWh(RMB 0.359/kWh +RMB 0.42/kWh) without considering the local subsidy. Both prices are higher than the electricity price under the business model of grid buyout.

      Table 1 Characteristics analysis of distributed generation business models

      Grid buyout Feeding of self-generated power into the grid after self-consumption Direct electricity sales model Regional electricity sales model Electricity trading method First for self-consumption Selling of the surplus electricity to electricity sellers Subsidy ways Feed-in tariff Subsidy for all generated electricity All the generated electricity is fed into the grid First for self-consumption and feeding of the surplus electricity to the grid First for self-consumption Selling of the surplus electricity to users in the power market Subsidy for all generated electricity Subsidy for all generated electricity On-grid electricity price (RMB/kWh)0.65 for the I type region 0.75 for the II type region 0.85 for the III type region Local benchmark coal-fired power tariff +0.42 + local subsidy Agreed electricity price +0.42+ local subsidy Agreed electricity price +0.42 +local subsidy User electricity price +0.42 + local subsidy Serviecs taking part in Power generation Power generation/consumption savings (RMB/kWh) / User electricity price +0.42+ local subsidy Self-consumption User electricity price +0.42 +local subsidy Power generation/distribution/sales/(consumption)Difficulty in financing Less difficult Difficult for third-party investment and financing Power generation/sales/(consumption)Difficult for third-party investment and financing Financing is less difficult than direct electricity sales Expected returns Stable returns High returns for commercial and large industrial users Returns are higher than those under the business model of self-generation mainly for selfconsumption and feeding of the surplus power into the grid but there are risks Returns are higher than those under the business model of self-generation mainly for selfconsumption and feeding of the surplus power into the grid, and risks are lower than those under the direct electricity sales model

      We can see that the incomes of residential users or commercial users under the business model of the feeding of self-generated power into the grid after self-consumption are higher than those gained under the business model of grid buyout if current electricity prices and distributed PV power generation subsidies do not change. This means that state subsidy policies have tended to encourage local consumption. The revenue from the direct and regional electricity sales depends largely on the agreed price relative to the local coal-fired power tariff and user power selling tariff. This mainly relates to the specific market trading mechanism.

      As displayed in Table 1, the business model of grid buyout is simple in operations and stable in revenue and is suitable for various distributed generation owners. It is,however, inflexible and uneconomical, failing to encourage the local consumption of electricity from distributed generation facilities.

      The business model of the feeding of self-generated power into the grid after self-consumption provides owners with more flexible returns. This makes it easy to encourage large industrial and commercial users to install distributed generation facilities. Overall electricity costs are lowered through power deduction, but risks of expected returns and the difficulty in financing increase due to problems such as long-term load stability and contract performance risks.

      In the direct electricity sales model, distributed generation owners and electricity users are relatively independent. The model is more flexible than the business models of grid buyout and the feeding of self-generated power into the grid after self-consumption. This allows distributed generation owners to have the opportunity to enjoy a higher ROI. This model, however, requires distributed generation owners to have the right to sell electricity and have stable large industrial and commercial users. There are some contract risks and financing difficulties.

      In the regional electricity sales model, distribution and sales business is further liberalized. Distributed generation owners usually have the right to operate both regional distribution and sales business and can directly distribute and sell electricity to regional users. This model means more stable distributed generation returns and costs for access to and transformation of distribution networks.Therefore, its overall efficiency needs to be further studied.

      Overall, the feeding of self-generated power into the grid after self-consumption, direct electricity sales, and regional electricity sales bring higher returns than the business model of grid buyout if current electricity prices and distributed PV power generation subsidies do not change. Returns from distributed generation projects are also relevant to users’ electricity demand and contract electricity prices. Therefore, there are more uncertainties and higher investment and financing risks.

      6 Conclusion

      Based on the analysis of the current situation and business models of distributed generation in China and foreign distributed generation experience, it can be seen that the pricing mechanism and government subsidy policies play an important guiding role in the development of the distributed generation industry. Distributed generation models that help solve financing problems and provide stable expected returns will promote the rapid and orderly distributed generation development.

      With the deepening of the electricity sales-side reform in China’s electricity market and liberalization of incremental distribution investment business, there are more diversified players in the investment, construction and operation of distributed generation facilities and more flexible ways for distributed generation owners to engage the marketplace.Accordingly, this also calls for higher levels of distributed generation operation and management. The healthy and orderly development of China’s distributed generation industry requires promoting the innovation of business models and establishing such safeguard mechanisms as the tariff mechanism, grid access mechanism and cost reimbursement mechanism.

      Acknowledgements

      This work was supported by SGCC Scientific and Technological Project (PDB17201600043); National Key R&D Program of China (2016YFB0900400).

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      Fund Information

      supported by SGCC Scientific and Technological Project(PDB17201600043); National Key R&D Program of China(2016YFB0900400);

      supported by SGCC Scientific and Technological Project(PDB17201600043); National Key R&D Program of China(2016YFB0900400);

      Author

      • Hui Yu

        HuiYu received her B.Sc. degree from North China Electric Power University, Beijing,2000, and M.Sc. degree at North China Electric Power University, Beijing, 2003. She is working in China Electric Power Research Institute, Beijing, China. Her research interests include operation and business mode of distributed generations, microgrids and its standardization, electric power distribution and distributed generation integration technologies.

      • Bowen Hong

        Bowen Hong received his B.S. degree from Sichuan University, Chengdu, China, in 2008,and received his Ph. D. Degree from Tianjin University, Tianjin, China, in 2014, both in Electrical Engineering. He has been working in Dept. of Renewable Energy of State Grid Energy Research Institute Co. Ltd. Since 2014. His research interests include Operation and Business Mode of Distributed Generators, Energy Storage and Micro-grid, and Planning of Active Distribution Network and Integrated Energy System.

      • Wenpeng Luan

        Wenpeng Luan received his B.Sc. degree from Tsinghua University, Beijing, China,in 1986, the M.Sc. degree from Tianjin University, Tianjin, China, in 1989, and Ph.D. degree from Strathclyde University,Glasgow, UK, in 1999, all in electrical engineering. He has extensive academic and industrial experience in power system analysis, power system planning, smart grid applications, and distributed generation integrations. Currently, he works with China Electric Power Research Institute as Chief Expert. His special fields of interest include smart sensing, data analytics, distribution system analysis, renewable energy resource integration, and utility advanced applications. He is a member of CIGRE, a senior member of IEEE, also is a Professional Engineer registered at the Association of Professional Engineers and Geoscientists of British Columbia, Canada. Also, he is the Secretary of IEC SC8B Decentralized Electrical Energy Systems, Chair for IEEE WG P2030.9 Recommended Practice for the Planning and Design of the Microgrid.

      • Bibin Huang

        BibinHuang received his bachelor, master and doctor degree at Tianjin University,TianJin, 2004, 2007, 2011. He is working in State Grid Energy Research Institute company, Beijing. His research interests include policy, planning and operation of distributed energy resource.

      • Yordanos Kassa Semero

        Yordanos Kassa Semero received his B.Sc.degree in Electrical Engineering from Mekelle University, Mekelle, Ethiopia in 2008, and M.Sc. degree in Electrical Power Engineering from Arba Minch University, Arba Minch,Ethiopia in 2011. He was a lecturer at the Department of Electrical and Computer Engineering of Mettu University, Mettu,Ethiopia from July 2011 to August 2014. Currently, he is pursuing his Ph.D. degree in Electrical Power Systems and Automation at the School of Electrical and Electronic Engineering of North China Electric Power University, Beijing, China, and is also a research staff at the Microgrid R&D Center of Goldwind Science and Technology, Beijing, China. His research interests include distributed generation, microgrid energy management systems,operation and control of microgrids.

      • Abinet Tesfaye Eseye

        Abinet Tesfaye Eseye received his B.Sc.degree in Electrical Engineering from Hawassa University, Hawassa, Ethiopia in 2010, and M.Sc. degree in Electrical Power Systems Engineering from Bahir Dar University, Bahir Dar, Ethiopia in 2012.Currently, he is pursuing his Ph.D. degree in Electrical Power Systems and Automation in the School of Electrical and Electronic Engineering of North China Electric Power University, Beijing, China, and also working in microgrid research and development center of Goldwind Science and Technology, Beijing, China. His research interests include distributed generation, microgrid energy management systems,operation and control of microgrids.

      Publish Info

      Received:2018-01-02

      Accepted:2018-01-30

      Pubulished:2018-04-25

      Reference: Hui Yu,Bowen Hong,Wenpeng Luan,et al.(2018) Study on business models of distributed generation in China.Global Energy Interconnection,1(2):162-171.

      (Editor Ya Gao)
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