Solar photovoltaic (PV) technology is a key component of China's strategy to meet rapidly growing electricity demand and achieve its “dual carbon” goals to peak carbon emissions by 2030 and achieve carbon neutrality by 2060. Because of solar PV’s efficiency and cost-effectiveness, projections suggest that solar’s share in China's electricity mix could increase from 5% in 2022 to 45% by 2060.

Transitioning from a fossil fuel-dependent system to one that is distributed, market-driven, and environmentally friendly will be essential for China’s low carbon transformation. China’s energy sector is responsible for nearly 90% of the country’s greenhouse gas emissions. Reducing energy sector emissions will require an extensive expansion not only of solar PV but also other types of renewable energy, such as wind and hydropower, as well. Renewables could account for up to 80% of China’s power generation by 2060.

As China seeks to decarbonize its energy sector, it will also need to simultaneously expand power resources to meet rapidly growing electricity demand. China's eastern region is experiencing an urgent electricity deficit. As of 2022, the region’s annual electricity demand exceeded 4 trillion kilowatt hours (kWh), far surpassing the generation capacity of about 3 trillion kWh, leading to a regional shortfall of roughly 1 trillion kWh. This gap, expected to widen annually, highlights the need for enhanced power generation. Electricity demand in the region has risen about 7% annually since 2020, outstripping the 4% growth in power generation, underscoring the necessity of additional power resources to meet the demands of ongoing economic and demographic growth.

Distributed rooftop solar offers several advantages over large-scale ground-mounted facilities, and is increasingly preferred. These installations, which accounted for 58% of new PV installations in 2022, are favored due to lower investment requirements, reduced construction costs, and greater flexibility. These systems are smaller in scale, offering more flexibility in construction and the ability to generate power close to where it is consumed, thereby optimizing on-site electricity use. Furthermore, the abundance of rooftop space in China's rural areas, coupled with well-defined ownership rights, makes these regions particularly suitable for the expansion of distributed PV. This is especially relevant in densely populated eastern regions, where efficient use of space is crucial.

The expansive rooftop area of rural buildings in China, estimated at 27.3 billion square meters,^[1] presents a vast potential for residential PV installation. This could translate to an installed capacity of nearly 2 billion kW and an annual electricity generation surpassing 2.5 trillion kWh,^[2] exceeding the regional electricity shortfall of 1 trillion kWh. Rooftop solar could potentially meet the current annual electricity demands of rural households and also address wider electricity needs of sectors such as agriculture and forestry, collectively amounting to approximately 550 billion kWh. Furthermore, rural residential PV is not just environmentally beneficial, it also offers substantial commercial advantages, aligning with China’s rural revitalization strategy.

This sector has attracted a diverse range of investors, from private equity funds to large state-owned energy firms, promising a stable annual return on investment (ROI) of 8% to 10%. Moreover, the establishment and maintenance of these PV stations are creating employment in rural areas, ranging from basic installation and cleaning to more specialized roles in sales and regular maintenance, thereby contributing to local economic growth and sustainability.

To capitalize on this potential, the residential PV sector in China operates primarily under two business models: rooftop leasing and self-financing and self-ownership.

The rooftop leasing model, encompassing over 80% of the market, is particularly prevalent in rural areas and is characterized by its unique approach to customer acquisition and grid integration. This model involves developers leveraging local market insights and customer access to secure a rural customer base. They often use innovative grid integration solutions, such as "village-level aggregation," and explore green credit models, taking advantage of national incentives for green finance.

On the other hand, the self-financing and self-ownership model, where the rooftop owner bears the cost and retains ownership, is gaining traction among households aware of PV benefits and revenue potential. This model can yield a higher internal ROI (13%-15%), but it exposes owners to risks like natural disasters and operational challenges, and there is a general lack of awareness regarding insurance products in rural China. This explains the increasing preference for the rooftop leasing model in the current context.

Empowering Rural Futures through AIIB & EF China's Solar Energy Initiative

Energy Foundation China’s (EF China’s) vision is to achieve prosperity and a safe climate through sustainable energy. EF China is working to achieve a goal of more than 85% of China’s electricity from non-fossil fuels by 2050 and accelerate efforts to achieve carbon neutrality of China’s power system. To respond to the challenges of climate change, The Asian Infrastructure Investment Bank (AIIB) has committed to ambitious climate financing, targeting over 50% of its financing to climate-related projects by 2025.

EF China and the AIIB share the same view that the sustainable development of distributed solar energy can contribute to the synergy of China’s clean energy transformation and local economic development. These two parties jointly supported a third-party consulting company to develop and launch a research report on the sustainable development of photovoltaics in Chinese rural households. The report summarizes the development status of residential PV, and explores its commercial, industrial, environmental, and social values. Visioning the future development of rural residential PV, the report identifies six pillars supporting the development of China’s rural residential PV under a clean power system. In February 2023, AIIB approved a green loan facility for Chongho Bridge to finance the deployment of rooftop solar power generation in rural regions. The core findings of this report provided solid technical reference for the issuance of this loan.