Distributed Power Generation Association continues to follow the international experience of energy development. Special attention is paid to China, one of the world's industry leaders. We present an exclusive material: interview with Dr. Yang Lei, Vice President of the Institute of Energy Research at Peking University, formerly an adviser to the International Energy Agency and an employee of the National Energy Administration of the People's Republic of China.

Distributed Power Generation Association has been cooperating with the Institute of Energy of Peking University for several years in expert work. Representatives of the Institute are members of the International Expert Council of the International Award «Distributed power generation – great achievements», improving the deepening cooperation between Russian and Chinese experts in the field of distributed generation.

A month ago, the National Energy Administration published the latest statistics on China's electric power industry. According to the data, by the end of April 2025, the installed capacity of solar power plants in the country reached 990 GW (more than 40% of the global total), and wind energy - 540 GW (over 45% of the global figure). China also produces more than 80% of all solar modules and 75% of lithium batteries in the world. In addition, China has seen rapid growth in solar and wind power, as well as an expanding industrial base for the production of photovoltaic modules, lithium batteries and electric vehicles.

However, such rapid development came with some difficulties: excess capacity, price wars, and the need for regulatory reform. The Chinese publication Caijing talked with Dr. Yang Lei, Vice President of the Institute of Energy Studies at Peking University, former adviser to the International Energy Agency and former employee of the National Energy Administration of the People's Republic of China, about what allowed China to achieve such results and what challenges the energy industry faces in the future.

According to Yang Lei, China's success is due to a combination of four key factors: market confidence and support for private companies; investments in technology and innovation; developed entrepreneurship, as well as consistent government policies focused on market reforms.

Yang Lei also stressed that China, despite its successes, must continue to study international experience, not to withdraw into itself and solve systemic problems: improve market pricing, modernize distribution networks, stimulate domestic demand for renewable energy.

He noted the need for reforms in the gas and electric infrastructure, the development of flexible investment mechanisms, as well as the use of the potential of electric vehicles as distributed energy storage.

Special attention was paid to the international context — the deterrent influence of the United States, the importance of climate cooperation with the EU, and the lessons of energy independence from the example of Russia.
Below is a summary of the conversation.

Four Growth Factors of China's New Energy Industry

Caijing: Judging by the installed capacity, China's new energy industry is already far ahead of the global one. Looking back over the last decade, what do you think we did right?

Yang Lei: First of all, we need to trust the market. In the wind power, photovoltaic, and electric vehicle industries, most of the leading enterprises are private, and the major innovators in the industry are also private enterprises.

The second point is politics. Starting with Law No. 5 of 2002 and Law No. 9 of 2015, and ending with the phased reform of the distribution network and the construction of the spot electricity market, the Chinese government has always insisted on promoting market-oriented reforms in the energy sector. However, the process of market formation is slow, and there is a discrepancy between the plans and expectations of the reforms. The creation of a National Oil and Gas Pipeline Company is also an important measure for the formation of the natural gas market, which is developing faster than the electric power market. Currently, there is a basic consensus in the industry, namely: the development of the electric power industry should be based on market relations with an emphasis on the development of new energy. Also, in particular, at the third plenary session of the 18th CPC Central Committee, they confirmed that the market should play a crucial role.

The third point is to believe in technology. The driving force behind China's energy revolution is technology. We have always said that science and technology are China's main productive force. It is necessary to attach greater importance to innovation and scientific and technical research and development.

Caijing: Some foreign experts say that China's new energy industry has developed so rapidly because of the government's industrial policy. Is that reasonable?

Yang Lei: From a global perspective, there are many approaches to stimulating the development of new energy. There is nothing wrong with our approach. I want to emphasize that technology and the market play a truly sustainable and fundamental role. For example, we also supported the development of ethanol production, but it did not reach the same scale as photovoltaics in the near future. There are no universal approaches, but to choose the right solution, we study other people's experience and apply it at home. In the end, in my opinion, the market always looks like a more effective solution in this matter.

Supporting new energy through a special industrial policy is very important. Thus, support for the development of photovoltaics and the electric vehicle industry has accelerated the pace of industrial development. This has attracted a lot of international attention, which is understandable. However, it would be rather one-sided to say that China has achieved this success only thanks to a policy of supporting industry.

Caijing: China is now the world's largest new energy market, but for a long time Europe was the world's largest market, and it supported the new energy market with subsidies. Why didn't Europe eventually develop a strong new energy industry, while we did?

Yang Lei: The new energy industry of the European Union is still very strong. For example, Germany's share in wind turbine installations and electricity generation is much higher than ours. The industry of the European Union is really not developed. To develop new energy, they mainly buy finished products from China.

Why are Chinese photovoltaic products cheap? Because there is a huge industrial chain of polysilicon production. This is the advantage of China's industrial base and the choice of an international division of labor. Production costs are relatively high in many countries. For example, it may be more than twice as expensive to produce the same photovoltaic component in the United States than in China. China has great advantages. It can invest and directly export technology.

Caijing: Besides the market, politics, and technology, I think another important point is entrepreneurship. There is also a discussion about what is more important — entrepreneurship or engineering? I think entrepreneurship is more important. Without entrepreneurship, the engineering foundation cannot be activated.

Yang Lei: Entrepreneurs rely on the market. The market allows an entrepreneur to realize himself and achieve great results. Ultimately, a well-functioning market is necessary to reward entrepreneurial activity and further promote industrial development.

«Over-thinking about the end result is counterproductive»

Caijing: In 2015, we launched the Energy Countries section to present international experiences for domestic energy transformation. Now that China has become number one in the world, does this mean that we don't have international experience to learn from?

Yang Lei: We shouldn't be arrogant. One of the beautiful traditions of Chinese culture is modesty, which is always a virtue. And we still have a lot to learn. For example, our market mechanism and business model are still very imperfect, and we lack many original technologies. "Our new energy industry is now number one in the world, and there is no need to learn from international experience" — this thought should not exist. If we want to develop sustainably, we must continue to learn. No successful entrepreneur would dare to say that he can become a world leader behind closed doors, and no country can become a powerful country behind closed doors.

Caijing: Do we have to find a balance between safety and cost, or between safety and efficiency?

Yang Lei: Our generation lives in a peaceful era, and we don't realize the value of a peaceful life. But Russia is giving us a wonderful experience: if a country doesn't have problems with food and energy security, it won't have problems with survival. Some say that Russia and Ukraine have been in conflict for so long — is Russia about to collapse? However, the Russian economy is functioning normally, although the quality and standard of living of people have decreased.

What important things have we not done yet?

Caijing: We just discussed what we did right. On the other hand, what else should we do that we haven't done well enough or haven't even started?

Yang Lei: It's worth discussing. We say we believe in the market, but does the energy market really play a crucial role in resource allocation? For example, the price of natural gas. The international community does not accept Chinese prices because we do not have a perfect enough market for pricing. Prices in China change based on government pricing. We are the largest importer of natural gas, and long-term contracts are not concluded in accordance with our price index, which also shows the problem of China's insufficient soft power.

Therefore, we need to accelerate the pace of development of market-oriented pricing. Developed countries started energy market reforms relatively early, and we can learn a lot from them in terms of innovations in business models. Many of their policy tools are relatively neutral, meaning they use different methods to design the market to optimize resource allocation. I have done a lot of research on natural gas market reforms and I know that the international community has also made many mistakes in this process. Some of these mistakes have led to high social costs. I hope that there will be no more such mistakes in the future. We can cross the river, feeling other people's stones, and not pay the price of mistakes again.

We also have a lot to learn in the field of basic innovation. The biggest challenge of our current scientific research system is how to encourage real creativity and original innovation, rather than focusing only on articles and projects. We have established many KPIs that actually take us even further away from real scientific research.

Caijing: 20 years ago, we discussed why there is no full-fledged energy market in China, and this problem has not been solved yet.

Yang Lei: From the point of view of economic common sense, the market is the best tool for optimizing the allocation of resources. But why is it so difficult in the energy sector? Energy has some features, and its biggest feature is the limitation of infrastructure.

For example, if a wind and solar power plant is built, I want to sell electricity, but without power lines and networks, I won't be able to sell it. If you want to develop a natural gas field, you need a pipeline to sell natural gas after it is extracted. At that time, I was involved in the preparation of the West—East gas pipeline. Everyone was very pessimistic and conservative because they had never used natural gas.

The gas industry usually has take-or-pay contracts, which means that even if you don't need natural gas at the moment, you still have to pay. Electricity is a more expeditious commodity. It must be used immediately after its generation, which happens instantly, and this places higher demands on the infrastructure. Therefore, the energy industry needs a complete set of facilities and regulations to support the development of the energy market.

Caijing: The market is the most effective way.

Yang Lei: China actually started reforming the energy market more than 20 years ago. For example, after the separation of power plants and power grids, active construction of power plants began. Now we are thinking about how to allow the market to contribute to the better development of new energy. I think there is a consensus on this issue, but for its implementation it is necessary to coordinate the government's policy in the field of regulation of the electric power industry.

One of the issues that needs to be addressed is cross—subsidization. This is a problem that has been bothering us for a long time. The price of electricity for the population is relatively cheap. Is it possible to raise it a little? It may also remain low, but it is necessary to clearly indicate where the money for subsidies is coming from. This is the only way we can properly develop the market. We clearly need to answer the question of which is primary — the market or social guarantees.

Caijing: To summarize, we have solved the problems in the field of production over the past 10-20 years. Next, we need to solve the problems of the market structure, trading mechanism and pricing mechanism.

Yang Lei: We have solved the problem of electricity generation, and now we face an acute problem of using electricity. The photovoltaic market is very sluggish right now. Why can't the domestic market scale up its usage? Just like when Europe and the United States imposed double anti—dumping on us, our orders plummeted - which was even worse than it is now. At that time, we relied on the domestic market to get out of the crisis. Now we need to start again, but we have a larger domestic market that needs to be developed.

Caijing: We need to rely on domestic demand again to boost the viability of the industry. But there are many bottlenecks here.

Yang Lei: Our market environment is much better than it was then. The construction of additional distribution networks and spot electricity markets in recent years has contributed to the emergence of an increasing number of market participants. If you go to the countryside, you will see that many farmers and entrepreneurs are engaged in new energy. The technical threshold has dropped rapidly, and many are engaged in new energy.

In the past, when wind and photovoltaic accounted for 5% of the electricity in the grid, the grid claimed it couldn't handle it. But now this figure has reached 20%. Weren't the roads built for horse-drawn carriages? But later, when cars appeared, the roads had to be repaired, made wider,  and traffic lights had to be installed. Now we need to transform the energy infrastructure, including electricity grids, gas pipelines, and heating networks. There is also the possibility of multi-purpose use of pipelines. For example, in the past pipelines were used to transport natural gas, but can they now transport hydrogen? The transformation of the electricity grid, the construction and improvement of the distribution network are the main priorities. Many renewable energy sources must be consumed locally, and if the grid fails, we need to build a distributed smart grid.

Caijing: The power grid was used for centralized power generation and long-distance transmission, so the backbone network was very developed, while the transmission and distribution network was relatively weak. Now that distributed energy has developed, the initially weak transmission and distribution network has become even weaker.

Yang Lei: The construction of distribution networks also includes investment mechanisms. Can it be built only by central enterprises? Or could there be more diversified investments? How should the investment mechanism be improved in the future? These are all practical issues, and these things are actually being done. If only a few central enterprises invest, the distribution network problem will be difficult to solve because the scale of investment is too large. But in retrospect, many intractable problems in the era of the planned economy were solved after the power of the market was brought into play.

I feel that this new round of reforms will yield a new result. Some virtual power plants and aggregators may find space for development in the market. Energy storage companies also need to know when the market should store electricity and when to discharge it. In the future, the scale of electric vehicles will get bigger and bigger — and will be much larger than the current energy storage system. An electric car is a mobile battery. In the future, when the scale of electric vehicles reaches hundreds of millions, it will be able to store billions of kilowatt-hours of electricity and send electricity back to the grid. If we calculate this based on a slow charging capacity of 10 kilowatts, 100 million cars can do this, which means 1 billion kilowatts of peak smoothing and backup power. 

Our total installed electricity generation capacity is just over 3 billion kilowatts. How to use this potential? We're still learning. Of course, what we are talking about here is very ideal conditions. The numbers may not be fully realized, but the trend is true.

Caijing: The EU began to implement market reforms in the 1980s, and they have been doing so for over 40 years. If we count from the moment Law No. 5 was issued in 2002, then market reforms in the electric power sector have been going on for only more than 20 years, and the achievements are enormous.

Yang Lei: So we have to be sure. If we can reach consensus and work together, China's energy market transformation can be accelerated, and new energy will have better development prospects. In the process of the great rebirth of the Chinese nation, new energy will play an important supporting role.

Will Trump promote the development of new energy?

Caijing: Since the signing of the Paris Agreement in 2015, the world has been moving in the right direction in terms of energy transformation and addressing climate change. However, the outbreak of the Russian-Ukrainian conflict in 2022 and Trump's return to the White House brought new variables to energy transformation and addressing climate change. What are the short- and long-term consequences of the Russian-Ukrainian conflict for Europe's energy transformation?

Yang Lei: The Russian-Ukrainian conflict has accelerated Europe's energy transformation. Previously, about half of the EU's fossil energy was imported from Russia. After the Russian-Ukrainian conflict, Europe presented the REpowerEU plan, a package of policies and action plans. This plan sets a radical goal, namely to completely eliminate fossil energy imports from Russia by 2030 by accelerating energy transformation and energy diversification. At first, everyone thought that Europe would not be able to survive without Russian natural gas, but three years later, Europe did not collapse. Progress in getting rid of dependence on Russian fossil energy is even better and faster than they had planned.

Caijing: In the short term, it seems that Europe's energy transition has stalled or even regressed, as the use of fossil energy has increased, electricity and energy prices have increased, which has caused strong social discontent. But in the long run, short-term difficulties instead accelerated her long-term transition to renewable energy.

Yang Lei: In fact, we have already seen such signs in the short term. Investments in energy conversion are accelerating. For example, the development of hydrogen energy is accelerating. We've never spent so much money on this before.

Caijing: A significant part of the natural gas supplied by Russia to the European Union has been replaced by American natural gas. If this is the only conversion, then it won't make much difference in terms of energy transformation.

Yang Lei: This is a short-term phenomenon. For example, the development of large-scale hydrogen production projects, the EU's strategy in the field of hydrogen energy is largely to replace natural gas. At the same time, due to political and economic factors, the use of natural gas in Europe is already decreasing at this stage, and it's not that US gas has filled the place of Russian gas. Of course, high gas prices are also a reason, but this trend is already there, and even some new regulations, such as the ban on equipping new buildings in the Netherlands with natural gas pipelines, are a clear signal to accelerate the transformation. The decline in natural gas consumption in Europe has affected the global natural gas industry, causing some panic among major natural gas suppliers, as Europe is the world's largest consumer of natural gas. In the past, we have said that natural gas is clean energy and has a brighter future. But what has happened in Europe may mean that the era of development based on natural gas resources is passing, and the era of market dominance is coming.

Prepared by the Distributed Power Generation Association based on the materials of Caijing (China) publication