Introduction

On 26 December 2023, Zheng Shanjie, Director of the National Development and Reform Commission (NDRC), presented the mid-term evaluation report on the implementation of the 14th Five-Year Plan and Vision 2035 at the 7th meeting of the Standing Committee of the 14th National People’s Congress. The report emphasized the importance of focusing economic development on the real economy, advancing high-end, intelligent, and green manufacturing, and strengthening China’s position as a manufacturing powerhouse. It further highlighted the importance of consolidating the leadership position of solar photovoltaic (PV) and other key industries.

The following day, on 27 December 2023, the NDRC issued the Catalogue for Guiding Industrial Restructuring (2024 Edition), categorizing “research, development, and industrialization of high-efficiency, low-cost solar PV technology” as a priority project under the “New Energy” category.

With the dual-carbon goals driving policy, the PV industry has received robust national support. Local governments have also introduced measures to facilitate the industry’s development, with distributed PV projects being a notable example.

Among these, commercial and industrial (C&I) rooftop PV projects, a primary type of distributed PV, typically involve investors utilizing rooftop resources in industrial enterprises or industrial parks to develop PV power plants. C&I users can benefit from preferential electricity rates while consuming the electricity generated onsite, reducing energy costs. Under the “self-consumption with surplus power fed to the grid” model, excess electricity can be sold to grid companies.

This article focuses on the compliance requirements for preparatory work preceding investments in C&I rooftop distributed PV projects. Using an investor’s perspective, the analysis integrates current laws, regulations, policy documents, judicial precedents, and practical experience to provide guidance and reference for potential investors.

I. Registration Procedures for C&I Distributed PV Projects

Currently, all C&I rooftop distributed PV projects are subject to registration management, with specific procedures determined by provincial governments.

Key Regulations in Zhejiang Province

Under the Guidelines for Advancing Distributed PV Development at the County Level in Zhejiang Province (2021) (hereinafter referred to as the “Guidelines”), C&I rooftop distributed PV projects must complete project registration and obtain a registration certificate before construction. The project owner is responsible for completing the registration process through local development and reform departments via the Zhejiang Government Service Network.

Article 5.3 of the Guidelines outlines the process for project registration, required documentation, and procedures for changes to registration. Additionally, the Hangzhou Distributed PV Power Project Service Guide (2023 Edition), issued by the Hangzhou Development and Reform Commission in December 2023, provides detailed operational instructions for registration, further supplementing the Guidelines.

Relevant Laws and Regulations

1. Interim Measures for Distributed PV Project Management (State Energy Administration [2013] No. 433)

• Article 10: Sub-provincial energy authorities manage registration in accordance with the State Council’s investment project management regulations and annual PV development quotas issued by the State Energy Administration. Provincial governments formulate specific registration procedures.

• Article 11: Registration procedures should be simplified, exempting projects from requirements such as electricity generation licenses, planning and site selection, land pre-approvals, soil and water conservation, environmental impact assessments, energy conservation evaluations, and social risk assessments.

2. Implementation Opinions on Deepening Reform of the Energy Sector’s Investment and Financing System (State Energy Administration [2017] No. 88)

• Energy projects listed in the Government-Approved Investment Project Catalogue must be approved, while all other projects are subject to registration procedures, with no form of approval required.

3. Guidelines for Advancing Distributed PV Development at the County Level in Zhejiang Province (2021)

• Article 5.1: C&I rooftop distributed PV projects must complete registration and obtain a registration certificate before construction. The project owner must handle registration through local development and reform departments on the Zhejiang Government Service Network.

• Article 5.3.1: Before applying for registration, project owners must obtain a preliminary grid connection opinion from the power company.

4. Hangzhou Distributed PV Power Project Service Guide (2023 Edition)

• Registration is exempt from requirements such as electricity generation licenses, planning and site selection, land pre-approvals, soil and water conservation, environmental impact assessments, energy conservation evaluations, and social risk assessments.

By complying with the above registration requirements and leveraging the operational guidance provided by local authorities, investors can ensure their C&I rooftop distributed PV projects are prepared for smooth development.

Compliance Procedures for Commercial and Industrial (C&I) Distributed PV Projects

II. Compliance Procedures Beyond Registration

Article 11 of the Interim Measures for Distributed PV Project Management stipulates that registration procedures for PV projects should be simplified. This includes exemptions from requirements such as electricity generation licenses, planning and site selection approvals, land pre-approvals, soil and water conservation permits, environmental impact assessments, energy conservation evaluations, and social risk assessments. However, these exemptions apply only to registration, not to the construction phase. Whether exemptions are applicable in construction must be determined based on other regulations. Below is an analysis of key compliance procedures relevant to C&I rooftop PV projects:

(A) Electricity Business Licence

Legal Basis

1. Regulations on the Supervision and Administration of Electricity Business Licences:

• Article 6: The National Energy Administration (NEA) and its regional offices supervise licensing for power generation, transmission, and supply enterprises.

• Unless exempt, entities must obtain electricity business licences for power generation, transmission, or supply.

2. Notice by the NEA on Streamlining Electricity Business Licensing:

• Certain projects are exempt from electricity business licences, including:

• Distributed generation projects specified in filing documents by energy authorities.

• Renewable energy projects (e.g., solar, wind) with an installed capacity below 6 MW.

• Projects exceeding the exemptions must obtain licences within six months after grid connection.

Key Compliance Points

• If the PV project’s installed capacity exceeds 6 MW or is not classified as a distributed generation project in filing documents, investors must obtain an electricity business licence within six months of grid connection.

(B) Construction Project Planning Permit

Legal Basis

1. Urban and Rural Planning Law:

• Article 40: Construction within urban or township planning areas requires a construction project planning permit issued by the local government’s planning authority.

2. Hangzhou Exemption List for Construction Project Planning Permits:

• Projects exempt from planning permits include small-scale, non-commercial distributed PV facilities without independent land use.

Key Compliance Points

1. Applicability:

• C&I distributed PV systems are generally commercial and do not qualify for exemptions listed for non-commercial PV systems.

2. Consultation:

• Investors should consult local planning authorities to confirm whether a permit is required for their specific project.

3. Special Cases:

• If additional structures are required on rooftops to support PV equipment, the need for a planning permit should be verified with local authorities to avoid penalties.

(C) Environmental Impact Assessment (EIA) Registration

Legal Basis

1. Administrative Measures for the Registration of EIA Forms:

• Projects requiring EIA registration forms must file them online before commissioning.

2. Catalogue of EIA Classification Management for Construction Projects (2021 Edition):

• Small-scale PV systems fall under the category requiring EIA registration forms, not full EIA reports.

Key Compliance Points

1. Capacity Considerations:

• C&I rooftop PV projects typically fall into the “other PV projects” category and require EIA registration forms.

2. Submission:

• Registration must be completed online before the project begins operations.

(D) Fire Safety Acceptance and Registration

Legal Basis

1. Interim Provisions on Fire Safety Design Review and Acceptance:

• Non-special construction projects must undergo fire safety registration within five working days after final project acceptance.

2. Technical Standards for Building PV Systems (GB/T 51368-2019):

• Fire safety design for PV systems must comply with national fire safety and building codes.

Key Compliance Points

1. Scope:

• C&I rooftop PV projects are not classified as “special construction projects” but must meet national fire safety standards.

2. Timing:

• Fire safety registration must be completed within five working days of project acceptance.

By ensuring adherence to the above compliance requirements, investors can mitigate legal and operational risks associated with C&I distributed PV projects in China. Each project should be evaluated in the context of local regulations to ensure compliance.

III. Selecting Suitable Rooftops for C&I Distributed PV Projects

Rooftops supporting C&I distributed photovoltaic (PV) facilities are typically leased by investors. Given that PV power plants have a typical operational life of 25 years, it is crucial to ensure the project’s continuous operation and safeguard the investor’s legitimate interests. Investors should pay particular attention to the following points before selecting a building.

(A) Buildings Must Be Legally Constructed

According to Article 16 of the Interim Measures for Distributed PV Project Management, the buildings or facilities hosting distributed PV projects must comply with legal standards. If the project entity and the owner of the building, site, or facility are not the same, the project entity must sign a lease or use agreement with the owner.

Further, Article 2 of the Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in Disputes over Urban Housing Lease Contracts (2020 Revision) states that lease contracts for properties constructed without a construction planning permit or in violation of such permits are invalid. Buildings without a valid planning permit are considered illegal structures. Consequently, PV power plants on such buildings may face demolition if the lease agreement is deemed invalid. It is recommended that investors review the building’s planning documents to confirm its legality.

(B) Subleases Require the Consent of the Property Owner

If the building has already been leased to another party, the investor will form a sublease relationship with the existing tenant rather than a direct lease with the property owner. Under Article 716 of the Civil Code, subleases require the owner’s consent. If a tenant subleases without consent, the owner has the right to terminate the lease.

Investors should verify with the tenant whether the property owner has approved the sublease and retain written evidence of such consent. Additionally, investors must ensure that the rooftop lease term does not exceed the duration of the original lease, as agreements beyond this limit are not enforceable against the owner unless explicitly agreed otherwise. It is advisable to negotiate terms involving the tenant and property owner to secure long-term operational stability.

For scenarios involving multiple sublease layers, additional consent from intermediate subtenants may also be required.

(C) Leasing Shared Rooftops Requires Democratic Decision-Making by Owners

According to Article 278 of the Civil Code, changes to the use of shared parts of a building, such as rooftops, require collective approval from owners. Decisions must involve two-thirds of owners by both headcount and ownership share, with specific thresholds for agreement depending on the type of change.

If the rooftop is part of a shared building (e.g., residential or commercial complexes), investors must confirm compliance with democratic decision-making procedures to avoid disputes affecting the project’s operation.

(D) Exceptions to the Principle of “Lease Surviving Sale”

Under the “lease surviving sale” principle, changes in property ownership during the lease term do not affect the tenant’s rights. However, there are exceptions under Chinese law, including:

1. Mortgaged Property: If the property is mortgaged before the lease, a change in ownership resulting from the mortgage may invalidate the lease.

2. Seized Property: Leased properties under judicial seizure may be disposed of in ways that affect the lease.

3. Bankruptcy: Leases may be terminated by bankruptcy administrators exercising contractual rights.

Investors should investigate whether the property is mortgaged, seized, or subject to bankruptcy proceedings before signing agreements. Where risks are present, investors should seek alternative properties or require written assurances from the owner and creditors to protect the lease.

IV. Choosing an Appropriate Cooperation Model

(A) Leasing Model

Under the leasing model, the investor pays rent to the building owner and may sell electricity to the user without offering discounted rates. The advantages include fixed rooftop rent and protection under the “lease surviving sale” principle. However, leases are capped at 20 years under the Civil Code, creating potential misalignment with the typical 25-year PV project lifecycle. Attempts to circumvent this limitation through contractual arrangements may be legally invalid.

(B) Energy Performance Contracting (EPC) Model

In the EPC model, the investor does not pay rent but charges the energy user for electricity at discounted rates. These contracts typically combine elements of electricity supply agreements and rooftop use agreements. Courts may interpret these as either leasing relationships or cooperative agreements depending on the case, which affects the investor’s legal protections and operational flexibility.

V. Selecting the Right Partner

Given the long operational lifecycle of PV projects, investors should carefully evaluate potential partners in the following areas:

1. Ownership Rights: Verify that the contracting party holds legitimate rights to the rooftop, whether as the property owner, shared owner, subtenant, or authorized agent.

2. Creditworthiness: Investigate the partner’s credit history, including prior administrative penalties, litigation, or financial instability.

3. Business Operations: Assess the partner’s energy needs, industry prospects, and capacity for long-term cooperation.

If the partner is a public company, publicly available disclosures, such as financial and ESG reports, can be valuable sources of information.

VI. Conclusion

C&I distributed PV projects are a key mechanism for achieving China’s dual-carbon goals and are strongly supported by national policies. Despite the sector’s maturity, investors should carefully consider compliance requirements and potential risks during the initial stages of investment. Proper planning will ensure the legal, stable, and continuous operation of PV power plants, maximising the return on investment.