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In recent years, China has successively issued relevant policies to support the development of distributed renewable energy sources such as dispersed wind power (DWP) and distributed photovoltaic (DPV). The capacity of DPV grows fast, but the progress of DWP deployment is limited. In this paper, the improved levelized cost of electricity (LCOE) model and the internal rate of return (IRR) are employed to evaluate the economics of DWP and DPV for case regions. We find that, under current market regime, the IRR of DWP in eastern and central regions is 8.81%–10.34% for the grid side, and which of DPV is 9.08%–12.8% for the user side. When the power market is restructured, the IRR of DWP for industrial and commercial user side increases to 12.73%–14.86%, higher than that the return of DPV. Policy implications on grid-connection, land expropriation, and financial support, planning and approval procedure are proposed to promote the development of DWP. Overall, this paper covers the research gap on the development of DWP in China with a technical/institutional economics perspective and a comparison with DPV. Furthermore, our efforts make a significant contribution to DWP policy by identifying the institutional factors that hinder the development of DWP. • Explore the technical & institutional factors around DWP deployment in China. • DWP and DPV gain comparable economic returns under current planning regime. • DWP can have better economic returns than DPV with electricity market reform. • Identify institutional factors that hinder DWP and propose policy implications. [ABSTRACT FROM AUTHOR]