ZHAO Chunjiang recently received a notice from the State Grid that he is due payment for the electricity generated by solar panels he installed on one of his two houses.

It was the first time since Zhao put 22 panels on the roof of his house in Shanhua Road in 2006 that he had received such a notification. That's because of a series of new energy directives issued by state and municipal governments, allowing solar users to sell excess electricity back to the grid.

"I was abroad at the time, so I haven't checked the bill to see exactly how much my first payment is," said Zhao, who is director of the Solar Energy Institute at the Shanghai University of Electric Power. "It's probably not much, but it's a big step forward."

Last October, the government announced that people like Zhao could have their self-generated electricity connected to the grid, allowing them to be paid for unused energy.

The central government directive urged state grid offices to cooperate and made it clear that users could sell extra power back to the grid, though the price has not been finalized. Technicians subsequently installed a new meter at Zhao's house to record the energy going in and the energy going out.

China is trying to promote clean energy sources in an effort to wean the country off polluting coal. Its efforts to popularize alternative energy sources have given the domestic solar power industry a boost at a time when overseas sales have suffered from oversupply and from trade disputes with the US and the European Union.

Small percentage

Energy pioneers like Zhao, who install solar panels at their homes and are now eligible to connect to the grid, remain a small percentage of the population. In Shanghai, only 20 applications have been filed under the new ruling, and 14 of them are companies, not individuals.

"The announcement concerning distributed energy sources shows the government is taking initiatives to expand the use of solar power," said Qiu Liping, co-founder and managing director of Milestone Capital, which invests in the solar industry.

"The policy needs more detail in terms of the feed-in tariff and timeframe, but at least the government is showing its commitment."

Clouds have been descending on China's solar industry.

In March, Wuxi-based Suntech, one of the world's largest solar panel makers, defaulted on its US bonds, and its main arm was forced into bankruptcy by Chinese banks after a series of bad investments.

The case drew great attention to the Chinese industry, which expanded rapidly to become the world's largest by 2007 and then began a steep decline in 2012.

The situation worsened when several Western governments cut subsidies for solar projects, and the US and EU initiated anti-dumping investigations against Chinese solar producers and exporters.

In November, the US levied punitive duties on Chinese solar products for the next five years. The outcome of the EU investigation, begun last September, is expected be announced in early June.

Under the ruling from the US International Trade Commission, Suntech was hit with combined duties of about 36 percent, while China's Trina Solar faces duties of about 23.75 percent.

More than 100 other Chinese producers and exporters face duties averaging 31 percent. The higher costs have severely hurt sales abroad.

Can domestic demand take up some of the slack?

According to the International Energy Agency, China represented the world's second-biggest solar market in 2012 and ranked third in terms of total installed capacity.

Funding for projects

A recent state energy conference hosted by the National Energy Administration set a 2013 target of 10,000 megawatts of photovoltaic installation, 2.5 times more than in 2012.

In 2009, the China Environmental Protection Foundation Clean Development Fund launched the China-Golden Sun Aid Project to provide funding for qualified solar producers and projects.

Large solar power plants are a major component of the industry's growth, leading many companies to turn their focus toward the domestic market. Trina Solar's sales in China rose from 13.5 percent in the third quarter of 2012 to 32.4 percent in the fourth quarter.

Smaller companies such as Shanghai ERA Solar, which helped install solar panels at Zhao's new house on Xinnan Road, have been actively looking for domestic opportunities.

"We have been waiting for the permission to connect to the grid for a long time," Hong Chong-en, the company's general manager and a board member of the Shanghai Solar Energy Society, said.

"The domestic market has been growing, and will be expanding at an even greater rate, but is it fast enough for some endangered solar companies?" Hong added.

Exports of solar panels made up about 90 percent of the company's business and solar lights another 8 percent to 9 percent. ERA Solar has invested time and money in designing and installing roof-integrated solar systems for individuals and organizations, but that represents less than 1 percent of its current business.

"The potential market for individual users is great, but right now, we are still mainly looking at companies," Hong said.

"Costs have dropped significantly in recent years, but they would still discourage an ordinary household."

The government has yet to announce prices for solar power sold back to the grid. Branches of the state grid in different cities pay varying rates at present. In Shanghai, it is 0.473 yuan per kilowatt-hour, but analysts expect that to rise once the price is finalized.

Hong's company helped Zhao install panels totaling 3.7 kilowatts on the roof of his house on Xinnan Road, at the cost of 40,000 yuan (US$6,470).

The panels generate about 15 kilowatt-hours of electricity a day, while Zhao's family consumes about 20.

The grid charges electricity users in Shanghai 0.61 yuan per kilowatt-hour during the day and 0.35 yuan per kilowatt-hour between 10pm and 6am.

Zhao figures it would take 10 years to get his money back on the solar installation if he sold all the power back to the grid at a final price of between 0.8 yuan to 1 yuan.

Zhao said the numbers may not seem to make good economic sense, but as director of the Solar Energy Institute, he wants to set an example.

In a city of high-rise apartment blocks, it's a hard example to set. Zhao has a house, where solar installation is relatively easy. Only one individual who applied for connection to the grid in Shanghai lives in an apartment block. Dang Jihu had to get the permission of two-thirds of apartment owners in his block before he could have the panels installed.

Backup power source

It's not surprising that companies - especially factories - are more interested in going solar than individuals at this stage.

Faced with periodic cuts during hours of peak electricity use, they regard solar as a complementary backup power source.

"I'm deeply interested, but it's difficult to make the decision now because the price is not finalized and I can't estimate my return," said Alan Zhen, a manufacturer of processed metal products.

Qiu remains somewhat optimistic about the industry, though he admits it's hard to know at this stage whether every Chinese solar panel makers can be saved by growth in domestic demand.

Since 2006, his company has made four investments in the solar industry: Trina Solar, which is listed on the New York Stock Exchange; GCL Silicon, listed in Hong Kong; Nanjing Guanya Power Equipment; and BoostSolar Photovoltaic Equipment.

"Many in the industry are suffering badly right now," he said.

"If you look at the financials of these companies, many are leveraged at 80 percent or even more."

He added: "People are still interested in investing in solar plants, but there isn't enough capital to be invested.

"Government subsidies are way behind the schedule promised. Domestic expansion in demand alone will not solve the issue completely."