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The National Development and Reform Commission (NDRC), China's central planning agency, has designated four planned gas-fired cogeneration projects as demonstration projects for the first time, according to a statement issued on Tuesday.

The distributed energy projects will be eligible for subsidies from the central government and should begin construction this year, the statement said without providing further details.

The four projects have a combined 40.83 megawatts (MW) of planned installed capacity, with two developments owned by one of the country's five largest state-owned power producers, China Huadian Corp. The other two projects belong to China National Offshore Oil Corp. and Beijing Gas Group Co. Ltd.

The NDRC selected Huadian's two facilities as demonstration projects in order to utilize research conducted by the company at its National Distributed Energy Technology Research & Development Center, Zhang Kuiye, an analyst with Beijing-based China Energy NET Consulting Co. Ltd., told Interfax on Tuesday.

The center is one of eight energy-related institutions authorized by the National Energy Administration last year, and the only one in the country dedicated to distributed energy.

Huadian aims to have 2.29 gigawatts (GW) of gas-fired co-generation capacity by 2015 and 10 GW by 2020, China Energy News reported on June 11, citing remarks made by Huadian's general manager Yun Gongmin. The company announced on Tuesday it had signed a memorandum of understanding with Mitsubishi Heavy Industries Ltd. (MHI) to jointly promote gas-fired distributed generation systems in China. As part of the agreement, MHI and its subsidiary MHI Engine System (Shenzhen) Co. Ltd. will supply a 'Meganinja' unit - a mobile generation system that uses gas-fired engines.

"As China has increased domestic output and imports of gas in recent years, the government needs to work out how to utilize the supply. Gas-fired cogeneration projects have high efficiency and are therefore encouraged," said Zhang, adding that central government has been subsidizing cogeneration projects for a number of years but this is the first time gas-fired cogeneration projects have received state funding.

Shanghai has subsidized the cogeneration sector since 2004, providing RMB 700 ($11.74) per kilowatt (kW) of installed capacity from 2004 to 2007. The municipal government hiked the subsidy to RMB 1,000/kW ($158.12) and introduced a RMB 100/kW ($15.81) grant for gas-powered air conditioners.