China's power giant Huadian Group and U.S. conglomerate General Electric on Tuesday signed a contract to set up a joint venture to develop aeroderivative gas turbines, core devices in distributed energy systems.

Distributed energy systems, also known as distributed energy resources (DER), refer to the generation of energy from small energy sources.

The 100-million-U.S. dollar joint venture will be called Huadian GE Aero Gas Turbine Equipment Co., Ltd., with Huadian owning a majority share of 51 percent. Located in Shanghai, it will be completed for production in 2013.

"It is the first step for us to introduce key DER technical equipment from the U.S. In the next stage we will gradually localize the technology," Huadian vice manager Deng Jianling said.

The move came after the two companies inked a letter of intent for a strategic cooperation in the energy sector during Chinese President Hu Jintao's visit to the U.S. earlier this year.

The cooperation will help introduce two types of aeroderivative gas turbines to China and some of these components will be produced and assembled in the newly-founded venture, according to a GE executive.

The aeroderivative gas turbine is modified from the aviation engine and burns natural gas to create energy. Its energy efficiency ratio can reach 80 percent. Distributed energy (DG) projects will help provide electricity for consumers located near the plants, thereby reducing energy waste during transmission.

According to the National Energy Administration, China plans to launch 1,000 DG projects with natural gas as the source in 2011. By the end of 2020, the installed capacity of DG-based natural gas generators is expected to reach 50 GW, surging 10-fold from 2011.