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首页文档碳中和资料研究报告能源转型如何重塑中国经济，实现绿色跃进？（英）--妙盈研究院

能源转型如何重塑中国经济，实现绿色跃进？（英）--妙盈研究院VIP专享VIP免费

The Green Leap
How the Energy Transition is Transforming China's Economy
ESG
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Overview: China’s Commitments to Demand Side Carbon Emission Reduction
The Industrial Sector
1. Recycling of energy-intensive products – steel, aluminum, paper and plastic
Case Company: Shanghai Chengtou Corporation, a pioneer in urban environment protection
Company Implications
2. Advanced electrical equipment drives energy efficiency improvement
Electric motors
Transformer
Variable-frequency drive (VFD)
3. Waste heat recovery technologies gain traction
Company Implications
Table of Contents
Executive Summary 01
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I.The supply side – power generation and the electricity grid
Overview: Variable Renewable Energy (VRE) Installations Maintain High Growth
VRE Integration Orders for Higher Grid Flexibility
1. Flexibility Retrofits for thermal power plants – Revisiting asset values
2. Energy Storage System (ESS) Scales with Rising VRE Capacity
Pumped storage
Electrochemical Energy Storage
Company Implications
Decarbonized grid calls for broader application of energy IT
1. Grid design and software solutions
2. Smart management of power transmission and distribution
3. Digitalized Electricity Market
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II.The demand side – sectoral use of energy
The Building Sector
1. Prefabricated construction leads the trend of low-carbon construction
Company Implications
2. BIPV and energy-saving materials empower passive buildings
Company implications
3. Air source heat pumps - the key driver for space heating electrification
Company implications
Virtue Power Plant and V2G accelerate in application
Spearhead applications
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TheGreenLeapHowtheEnergyTransitionisTransformingChina'sEconomyESG3741445454555656586265Overview:China’sCommitmentstoDemandSideCarbonEmissionReductionTheIndustrialSector1.Recyclingofenergy-intensiveproducts–steel,aluminum,paperandplasticCaseCompany:ShanghaiChengtouCorporation,apioneerinurbanenvironmentprotectionCompanyImplications2.AdvancedelectricalequipmentdrivesenergyefficiencyimprovementElectricmotorsTransformerVariable-frequencydrive(VFD)3.WasteheatrecoverytechnologiesgaintractionCompanyImplicationsTableofContentsExecutiveSummary010237I.Thesupplyside–powergenerationandtheelectricitygridOverview:VariableRenewableEnergy(VRE)InstallationsMaintainHighGrowthVREIntegrationOrdersforHigherGridFlexibility1.FlexibilityRetrofitsforthermalpowerplants–Revisitingassetvalues2.EnergyStorageSystem(ESS)ScaleswithRisingVRECapacityPumpedstorageElectrochemicalEnergyStorageCompanyImplicationsDecarbonizedgridcallsforbroaderapplicationofenergyIT1.Griddesignandsoftwaresolutions2.Smartmanagementofpowertransmissionanddistribution3.DigitalizedElectricityMarket0208101418202729323235II.Thedemandside–sectoraluseofenergyTheBuildingSector1.Prefabricatedconstructionleadsthetrendoflow-carbonconstructionCompanyImplications2.BIPVandenergy-savingmaterialsempowerpassivebuildingsCompanyimplications3.Airsourceheatpumps-thekeydriverforspaceheatingelectrificationCompanyimplicationsVirtuePowerPlantandV2GaccelerateinapplicationSpearheadapplications666772738183888892ExecutiveSummaryOverthepastfewyears,ChinahassteppedupitsclimateactioneffortstoacceleratethetransitionofChina'seconomyandenergymixtowardszerocarbonemissions.Thecarbonneutralitytargetof2060isapolicytargetsetbytheChinesegovernmentfor40yearsfromnow,creatingcertaintyandanchoringnewinvestmentopportunitiesforvalueinvestorsseekingexposuretoChina’sdecarbonizationtransition.Thecarbonneutralitytargetsignalsamajorshiftisonthewayinhowenergyissuppliedandconsumed.MioTechResearchhascompletedaseriesofstudiescoveringChina'spathtoreachingacarbonemissionspeak,andlater,fallingtoatargetofzerocarbonemissions.Visionsdrawnfromthesestudiesshowdistinctivefeatures;namely,decouplingenergyconsumptionfromeconomicdevelopment,continuousimprovementinenergyuseefficiency,acceleratedevolutionofenergydemandpatterns,continuousoptimizationofenergysupplystructures,andrapiditerationoflow-carbonenergytechnologies.Ontheenergysupplyside,thestructureofprimaryenergydemandwillchangedramatically,withfossilfueldemanddroppingbymorethan90%andrenewableenergybecomingthemainstayofenergysupply.Underascenarioofrenewableenergybecomingthedominantenergysource,weexpectseveraloutcomes:traditionalthermalpowerassetswillconfrontflexibilityretrofit,energystoragetechnologywillbeappliedonalargescale,transmissioninfrastructureinvestmentwillbeincreased,anddemand-sidemanagementandothermeasureswillimprovepowersystemflexibility.Meanwhile,digitalizationwillgreatlyimprovetheoverallefficiencyofbothproductionandconsumption.Onthedemandside,severalfactorswillreshaperesourceandenergyuse,includingincreasedefficiencyinenergyconsumption,large-scaleelectrificationoftheindustrial,buildingandtransportationsectors.Thecirculareconomywillalsoreshapetheindustry,whichdecoupleseconomicactivityfromtheconsumptionoffiniteresources.Intheindustrialsector,therecyclingandrecoveryratesofenergy-intensivematerialsandtheenergyefficiencyofgeneralelectricalequipmentwillbesignificantlyimproved,greatlyreducingenergydemand.Industrialwasteheatrecoverytechnologiesarealsobeginningtopickupsteamacrossindustries.Inthebuildingsector,prefabricatedconstructionwillleadthedecarbonizationtransitioninbuildingdesignandconstruction,andmuchroomforprogressremains.Heatingandcoolingofhomesandofficeswithzerocarbonemissionswillbemadepossiblebybuilding-integratedphotovoltaics,advancedheatpumptechnologiesandenergy-efficientbuildingmaterials.Alongwithprogressinelectrification,novelapplicationssuchasvirtualpowerplantsandvehicle-to-gridtechnologyaregainingtractionascontributorstoanewflexiblepowersystem.MioTechResearchconductsanextensivetwo-partassessmentofChina’songoingtransitiontowardacarbonemissionspeakby2030and,eventually,NetZeroin2060.ThefirstpartcoversChina’sgrid-sideinnovationswithacceleratingrenewabletransition,whilethesecondexaminesthecomplementaryenergydemandsideinnovations,especiallywithintheindustrialandbuildingsectorsunderthedecarbonizationtrend.Thestudyaimstorevealnewtrendsofgreeninvestment,especiallyfromthestandpointof2022,andtoexplorethesignificantinvestmentopportunitiesinthecomplexandchangingmacroenvironmentinthecomingyears.01TheGreenLeapExecutiveSummaryTheGreenLeapThesupplyside–powergenerationandtheelectricitygridI.Thesupplyside–powergenerationandtheelectricitygridOverview:VariableRenewableEnergy(VRE)InstallationsMain-tainHighGrowthWindandsolarpoweraccountforarisingshareofVariableRenewableEnergy(VRE).In2021,theduotogethertookalmost13.5%shareofChina’selectricityconsumption,upfromjust1.6%tenyearsago.Remarkably,newVREinstallationsarelargelymarket-driven,asthelevelizedcostofenergy(LCOE)ofonshorewindandPVisalreadysubstantiallycheaperthancoalandgas.Massivefinancingforrenewabletechnologieswillfurtherreduceproductioncostandimproveefficiency.Thecountryalsoannouncedrevisedtargetsasapartofthe14thFYPdecarbonizationpolicies,facilitatingChina'stechnologicaltransitionandsteeringthecountrytowardsitsdecarbonizationgoals.In2021,theinstalledcapacityofwindandphotovoltaicgenerationinChinabothexceeded300gigawatts(GW),accountingforone-fourthofthecountry’stotalinstalledgenerationcapacity.TheNationalEnergyAdministrationreleaseddatashowingthatin2021,China'sinstalledcapacityofwindpowersurpassedthe300GWmark,accountingforabout12.6%ofthecountry'stotalinstalledpowersupply.Windpowergenerationaccountedforabout7.5%oftotalelectricityconsumption.Comparedwith2020’sdata,bothfiguresareup0.3and1.3percentagepoints,respectively.Thenewly-installedwindpowercapacityof47.57GWisabout27%ofChina'stotalnewinstalledcapacity.China'scumulativeinstalledcapacityforphotovoltaicgenerationreached306GWin2021,accountingfor12.8%ofthetotalinstalledpowersupplyand4.5%ofthetotalelectricityconsumption;newly-installedcapacityis53GW,accountingfor31.1%ofallnewly-installedcapacityinChina.Ontheglobalscale,China'swindpowerinstallationhasmadeupmorethantwo-thirdsoftheglobalwindpowercapacity,withChina’stotalequaling1.4timesthetotalinstalledwindpowercapacityoftheEuropeanUnionand2.6timesthatoftheUnitedStates.Chinahasrankedfirstintheworldfor12consecutiveyears.Theinstalledcapacityofphotovoltaicpowergenerationhasalsorankedfirstintheworldforsevenconsecutiveyears.Inthefirsthalfof2022,Chinainstalled43.82GWofwindandsolarPVpowergeneration,accountingfor64%ofthecountry'snewinstalledcapacity.02TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid03Technologicaladvancementshavemadewindandphotovoltaicpowergenerationhighlyeconomical.ThecostofVREpowergenerationisactuallylowerthanthatofcoal-firedpowerplants.AccordingtodatareleasedbyIRENA,during2010-2019,China'sonshoreandoffshorewindpower’slevelizedcostofelectricity(LCOE)droppedfromRMB0.91/kWhandRMB1.15/kWhtoabout0.32/kWhand0.53/kWh,or65%and54%dropinpercentage.Duringthesameperiod,thephotovoltaicLCOEhasgonedowntoRMB0.36/kWh,areductionofmorethan90%.Variousrenewableinnovationsareacceleratingthegrowthandopportunitieswithintherenewableeconomyinthepastyear.Inthewindpowerindustry,leadingmanufacturerssuchasGoldwindandMingyanghavetransitionedtothelargerunitspecificationsof4MWand5MWunits,loweringitstenderprice.InthePVindustrychain,playerssuchasHJTandTOPContechnologyhaveemerged.Comparedwiththecurrent22.8%conversionefficiencyofPERC(passiveemitterandrearcells),thefinishedproductsofthetwotechnologiesareabletoreach24%,whiletheconversionefficiencycouldreachashighas27%theoretically.Accordingtotheindustryforecast,theLCOEofonshorewindwillfurtherdeclineduringthe14thFYPperiod,whichisexpectedtohitRMB0.1,0.2and0.3by2025inhigh,mediumandlowwindspeedareas,respectively.Atthesametime,theLCOEforSolarPVisexpectedtodroptobetweenRMB0.25and0.38by2025.ThesubsidizingpoliciesforwindandPVarebeingretiredandthefeed-intariff(FiT)schemehasbeenabolished.Since2021,nonationalsubsidieshavebeenprovidedfordevelopingcentralizedorcommercial/industrialdistributedPVprojects.Effectivefrom2022,nosubsidieswillbeavailablefornewhouseholddistributedPVprojects.WindpowercoincideswiththePVtimeline,withsubsidiesfornewly-approvedonshoreprojectsphasingoutin2021andnewly-approvedoffshorepowerprojectsscheduledtophaseoutin2022.Exhibit1:Windandphotovoltaicpowercumulativeinstalledcapacity(GW)inChina,2010-2021InstalledCapacity,GW35,00030,00025,00020,00015,0005,00020102011Source:ChinaElectricityCouncil,MioTechResearch201220132014201510,00002,9584,6236,1427,6529,657WindSolar13,075262123411,5892,4864,218201614,7477,631201716,40013,042201818,42717,4332019202020,91528,16520,42925,356202132,84830,65604Exhibit2:Onshorewindpowertariffs(inRMB)andnationalpolicies0.000.100.200.300.400.500.60NoticeontheRequirementsRelatingtotheManagementofWindPowerConstructionin2018(May,2018)NoticeonImprovingtheFeed-inTariffPolicyforWindPower(May,2019)2018(Benchmarkprice)ClassIIResourceAreaLetteronMattersRelatingtotheImplementationofthe2021NewEnergyFeed-inTariffPolicy(May,2019)2019(Guideprice)2021(Guideprice)0.40.340.290.340.380.470.390.430.520.450.490.57ClassIIResourceAreaClassIIIResourceAreaClassIVResourceAreaExhibit3:Offshorewindpowertariffs(inRMB)andnationalpolicies00.10.20.30.40.5NoticeontheAdjustmentoftheBenchmarkFeed-inTariffforPhotovoltaicPowerGenerationOnshoreWindPowe(Dec,2016)NoticeonImprovingtheFeed-inTariffPolicyforWindPower(May,2019)2018（Benchmarkprice）PriceofclassIResourceAreaSeveralOpinionsonPromotingtheHealthyDevelopmentofNon-WaterRenewableEnergyPowerGeneration(Jan,2020)2019（Guideprice)2021（Guideprice）1Benchmarkprice:Nationwideunifiedfeed-intariffsetbythenationalgovernment2GuidePrice:ceilingpricesetbythenationalgovernment,finaltariffdecidedbylowestbidTheGreenLeapThesupplyside–powergenerationandtheelectricitygridTheGreenLeapThesupplyside–powergenerationandtheelectricitygrid05Exhibit4:CentralizedPVtariffs(inRMB)andnationalpolicies:Guidepricepolicyexpiredin2021,whichmeansnomoresubsidieswereprovidedforcentralizedPV.0.000.200.400.600.802018NoticeofMattersRelatingtoPhotovoltaicPowerGenerationin2018(Jun,2018)NoticeonMattersRelatingtotheFeed-inTariffPolicyforphotovoltaicPowerGenerationin2020(Apr,2020)LetteronMattersRelatingtotheImplementationofthe2021NewEnergyFeed-inTariffPolicy(Jun,2021)NoticeonIssuesRelatingtotheImprovementoftheFeed-inTariffMechanismforPhotovoltaicPowerGeneration(Apr,2019)（Benchmarkprice）2019（Guideprice）20212021000（Guideprice）0.50.40.40.350.490.450.550.60.7ClassIResourceAreaClassIIResourceAreaClassIIIResourceAreaExhibit5:DistributedPVsubsidies(inRMB)andnationalpoliciesSource:Publicdocuments,MioTechResearch0.000.050.100.150.200.250.300.352018201920202021NoticeofMattersRelatingtoPhotovoltaicPowerGenerationin2018（Jun,2018）NoticeonIssuesRelatingtotheImprovementoftheFeed-inTariffMechanismforPhotovoltaicPowerGeneration（Apr,2019）NoticeonMattersRelatingtotheFeed-inTariffPolicyforPhotovoltaicPowerGenerationin2020（Apr,2020）LetteronMattersRelatingtotheImplementationofthe2021NewEnergy-Feed-inTariffPolic(Jun,2021）0.050.080.0300.10.320.18IndustrialandcommercialdistributedPVHouseholddistributedPV06In2021,thetwomajorgridcompaniesinChina,namelytheStateGridandChinaSouthernPowerGridbothrolledouttheiractionplansforcarbonpeaking.Lookingforward,bothcompanieshavesetoutambitioustargetsonpowermixchangeinlinewiththeStateCouncil’scarbonpeakingrequirementsby2030.Tofurtherbreakdownthecommitments,provincialgridsarealsoaskedtosetoutprovinciallevelnumericaltargetsforgridtransformation.ThefirstofitskindreporthavebeenpublishedbyZhejiangStateGridinMay2022.Theindustrysidealsoanticipatesacceleratingdomesticrenewableinstallation.TheNationalEnergyAgencyproposedthatby2025,thenationalPVandwindpowerwillaccountfor16.5%ofthetotalelectricityconsumption.ChinaPhotovoltaicIndustryAssociation(CPIA)expectsnewPVinstallationstoreach70GWperyearduringthe14thFive-YearPlan,andcanbeashighas90GWperyear.Windpowerinstallationsareexpectedtoremainstrongafterrecord-settinggrowthdrivenbyaninstallationrushforthephase-outoffeed-intariffscheme,withGWEC(GlobalWindEnergyCouncil)givingaforecastofabout40GWperyearfrom2022to2025.Exhibit6:ThenumericaltargetsonpowermixchangesetoutbyChina’stwogridcompaniesandprovincialgridsSource:Publicdocuments,MioTechResearch25%25%38%1TW54GW42%65%30%60%61%35%250GWNotmentionedNotmentionedNotmentionedNotmentionedNotmentionedNotmentionedNotmentioned1.2TWTheStateCouncil’sActionPlanforCarbonDioxidePeakingBefore2030GridCompaniesTheStateGridChinaSouthernPowerGridProvincialGridZhejiangShareofnon-fossilfuelintotalprimaryenergyconsumptionShareofnon-fossilfuelelectricitygenerationElectrificationrateoftotalenergyconsumptionWindandsolarinstallationtargetShareofnon-fossilfuelinstalledcapacityTheGreenLeapThesupplyside–powergenerationandtheelectricitygrid07Centralizedanddistributedrenewabledevelopmentareattachedwithequalimportance.TheNationalEnergyAgencyinDecember2021issuedanadministrativenoticetopromotethesecondroundoflargewindandPVprojectdevelopmentinWestChina,withthefirstroundofabout100GWoflargewindpowerPValreadyunderway.Ontheotherside,thenationalgovernmentispushingforthecouplingofdistributedwindpoweranddevelopmentwithruralrevitalizationactionplansinSouth-easternandCentral-southernChina.Thismoveunlockspotentialwindpowerofaround1000GWinthetworegions.DistributedPVisexpectedtobecomethemajorityformoffuturedevelopment,reachinga50%sharein2025.Exhibit7:ChinaWindPowerandPVCumulativeInstallations(GW),2021-2025Source:CPIA,GWEC,MioTechResearchCumulativeInstallations(GW)650550500450400350300250200600WindPowerPV30042058630620212025EExhibit8:Nationallevelpoliciesoncentralizedanddistributedrenewableenergyduringthe14thFYPperiod(partial)Source:Publicdocuments,MioTechResearchNationalEnergyAgency,"NoticeonOrganizingtheSecondBatchofLarge-scaleWindPowerandPhotovoltaicProjectsFocusingonDeserts,GobiandDesertAreasTheStateCouncil,"OpinionsonCompletelyAccuratelyandComprehensivelyImplementingtheNewDevelopmentConceptandAchievingCarbonNeutralization"Promotingthedevelopmentoflarge-scalewindandsolarenergystationsThetotalinstalledcapacityofwindpowerandPVwillexceed1200GWby2030NationalEnergyAgency,"NoticeonMattersRelatedtotheDevelopmentandConstructionofWindPowerandPhotovoltaicPowerGenerationin2021"NationalPeople'sCongress,"14thFive-YearPlanand2030VisionOutline"WindPowerandPVwillaccountfor16.5%ofthetotalelectricityconsump-tionby2025;initiateruralwindpowerandPVdevelopmentschemeDevelopmentofNinelarge-scaleenergybasesintegratingwind,solarandenergystorageandfiveoffshorewindpowerbasesDec-21Jan-21May-21Mar-21DatePolicyContent/ObjectiveTheGreenLeapThesupplyside–powergenerationandtheelectricitygrid08WindenergyandPVarebothVariableRenewableEnergy(VRE)sources,producingelectricityintermittentlythatcannoteasilybestored.Unlikestablegeneratingcapacityfromthermalpowerplants,VREsourcescannotbesimplypluggedintothegrid.Thiscreatestwomainchallengestothetraditionalpowersystemwhendeployedatscale:•VREsareweather(windandsunlightconditions)dependent,whichmeansthepowergeneratedvariesfromtimetotime,andevenatthesecondlevel,isunpredictable.DirectlyconnectingVREtothegridwillstresstheloadbalance,voltageandfrequency,affectingtheoverallstabilityofthegrid.•Second,VREsexperienceatypicalpowergenerationcurvethroughouttheday.Thepeakperioddoesnotnecessarilycoincidewithperiodsofhighpowerdemand(Exhibit8).Ingeneral,PVcanachieveitsmaximumoutputbetween9amand3pm,resultinginthelowestnetload(powerdemandsubtractingthewindandPVpowergeneration)onthegridduringthesehours.Between6-9amand6-9pm,however,thenetloadpeaksasthepowerdemandincreasesbuttheVREgenerationpowerdecreases.Maintainingthestableoperationofthegridiscrucial.Andtherefore,auxiliaryservicesfrompowergeneratorsandgridoperatorsneedtobeinplacetorespondquicklytothenetloadchangesinashortperiodoftime.VREIntegrationOrdersforHigherGridFlexibilityGridmodetransformationbecomesimperativeExhibit9:NetloadinCalifornia,theU.S.(DuckCurve)California’sduckcurveisdippingdeeperthaneverLowestnetloaddayeachyearinCAISO,2015-2021Source:CAISO20GW1512AM12AM3AM3PM6AM6PM9AM9PM12PM10202120192018201720162015202050MorningdemandpeakEveningdemandpeakMiddaysolarsaturationTheGreenLeapThesupplyside–powergenerationandtheelectricitygrid09SufficientflexibilityisthekeyforthedecarbonizedgridsystemtorisetothechallengesstemmingfromgridintegrationofVREandmaintainingsystemstability,whilemeetingelectricitydemand.Ingeneral,theprogressofthegrid'sdecarbonizationtransition,i.e.,theshareofelectricitygeneratedfromVRE,characterizesstagedflexibilityrequirements.Thegridthenneedstotakedifferentactions.SixphasesofVREgridintegration,asdescribedbyInternationalEnergyAgency(IEA),definethegridsystemimpactsandidentifyspecificflexibilityrequirements(Exhibit9),withtherequiredactionsandtheirassociatedcostsbecomingmoreprominentateachphase.TheissueoflackofflexibilitystartstobecomeasignificantandsubstantialchallengeinthetransitionfromPhase2toPhase3.ThecountryisrapidlyapproachingthestageofinsufficientflexibilitywhilesharesofVREkeeprising.FollowingtheboominwindandPVinstallationsinrecentyears,theircombinedshareinelectricitygenerationhasincreasedtonearly10%,avalueclosetotheIEAcut-offforPhase2andPhase3(Exhibit10).Duringthisperiod,thevariabilityofnetloadwillincreasesignificantlyandputthetraditionalelectricitytransmissionanddistributionmodeunderstress.Withoutsufficientflexibility,thegridwouldhavetoeithersuffersystemlevelstabilityissuesorcurtailVREfromthegrid.Exhibit10:SixphasesofVREgridintegrationSource：IEAKeytransitionchallengesMonthlyorseasonalsurplusordeficitofVREsupplyGrowingamountsofVREsur-plus(daytoweeks)ThesystemexperiencesperiodswhereVREmakesupalmostallgenerationVREgenerationdeterminestheoperationpatternofthesystemVREhasaminortomoderateimpactonsystemoperationVREhasnonoticeableimpactonthesystemPhase1:Phase2:Phase3:Phase4:Phase5:Phase6:123456NeedforseasonalstorageLongerperiodsofenergysurplusordeficitPowersupplyrobustnessunderhighVREgenerationGreatervariabilityofnetloadandnewpowerflowpatternsMinorchangestooperatingpatternsExhibit10StagesofVREgridintegrationbycountrySource：IEASource:(IEA,2019)Phase1:NorelevantimpactonthesystemPhase3:VREdeterminestheoperationpatternofthesystemPhase2:MinortomoderateimpactonsystemoperationPhase4:VREmakesupalmostallgenerationinsomeperiods%VREofannualelectricitygeneration010IndonesiaSingaporeSlovakRepublicNorwaySwitzerlandThailandCzechRepublicHungarySouthAfricaMexicoNewZealandCanadaEstoniaIndiaFranceJapanPolandChinaUnitedStatesBrazilFinlandTurkeyAustraliaSwedenAustriaMoroccoNetheriandsItalyBelgiumGreeceUnitedKingdomSpainPortugalGermanyIrelandLuxembourgDenmarkKorea20304050TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid10Therearefourmainavailablesourcesofgridflexibility:operationalflexibilityofthermalpowerplants,energystoragefacilities,cross-borderpowertrade,anddemand-sideflexibility.Fromthenationalpowergridperspective,iftheotherthreeflexibilityresourcesarelacking,cross-borderpowertradingisnotameaningfulsolutionatthesystemlevel.Demand-sideflexibilityrequiresinpartbehavioralchangesofenergyconsumersandanelectricitytradingmarketthatcanassistinachievingsuchchanges,bothofwhichcannotbeachievedovernight.Therefore,flexibleoperationofthermalpowerplantsandenergystoragefacilitiesarecurrentlythetwomostfeasibleandeffectivesolutionstothegridtransitionchallengeinthecomingyears.Inthetraditionalpowersystem,thermalpower,particularlycoal-firedpowerplants(CFPP)assumethecentralroleofprovidingbaseloadcapacityandfollowingloadchangesonthedemandside.WithVREtakingamajorityshareofnewinstallationssincethe13thFive-YearPlan,CFPPgraduallyweakeneditspositionasthemainproviderofinstalledcapacity,butisslowlytransformingintothemainsourceofelectricitygeneration.Furthermore,CFPPsareleaningmoretowardsfollowingdemandthroughouttheday,byrunningduringthedayandearlyevening.TheyareoperatedindirectresponsetochangingdemandandVREplantoutput.ThistransitiontrendisbestreflectedbychangesinCFPP’sfull-loadhours,astatisticusedtomeasurepowerplant’sactualelectricityoutputoveraperiodoftime.InChina’straditionalpowersystem,thefull-loadhoursofCFPPareabout5,000hoursperyear,whichisthetypicalnumberforCFPPsprovidingbaseloadcapacityandfollowingloadchanges.AccordingtothedatapublishedbytheNationalEnergyAgency,theannualaveragefullloadhoursofCFPPsfallby16%from5,305hoursin2011to4,448hoursin2021.(Exhibit11).1.FlexibilityRetrofitsforthermalpowerplants–RevisitingassetvaluesShiftingroleofcoal-firedpowerplantsExhibit11:Averageannualutilizationhoursofcoal-firedpowerplantsinChina,2011-2021Source:ChinaElectricityCouncil,MioTechResearch5,5005,0004,5003,5004,0003,0002011201220132014201520162017201820192020202153054982502147784364418642194378444843074211TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid11WebelieveChina’sdecarbonizedpowersystemwouldgivemoreprioritytotheVREcapacity,andCFPPshallservetheflexibilityfunctiontopeak-shaveandvalley-fillthepowerloadprofile,andmaintainstableoperationofthegridsystem.Thepredominantsourceofgenerationcapacitywillgraduallyshiftfromthermalpowertohydro,PVandwindenergy.ThedemandofflexibleCFPPwillbeproportionaltothenewlyinstalledVREcapacity.InAugust2021,NationalDevelopmentandReformCommission(NDRC)andNEAissuedaregulatorynoticeonencouragingrenewabledeveloperstobuildorpurchasepeakshavingandvalleyfillingcapacity.RetrofittedflexibleCFPP,pumpedstorage,andelectrochemicalenergystorageareencouragedasflexibleresourcestoundertakerenewableenergyintegration.TheNoticespecifiesthattherenewabledevelopersshouldatleastdeployequivalentto15%installedVREcapacityofpeakshavingandvalleyfillingcapacity,withastoragedurationof4hours.Grid-connectionprioritywillbegiventothosedeployedpeakingshavingandvalleyfillingcapacityataratioof20%ormore.Powerauxiliaryservicemarketmechanismsassub-marketsoftheelectricitymarkethavealsobeenintroducedatthenationalleveltoencouragetheflexibilityretrofittingofexistingthermalpowerassets.Since2019,majorregionalgridshavegraduallyadoptedpeak-shavingauxiliaryservicetradingmarkets.Asaneconomicincentivemechanism,flexiblethermalpowerparticipatinginpeak-shavingauxiliaryservicesreceivesreimbursementproportionaltotheamountofgenerationactuallyreplacedbyrenewableenergy.Onthisbasis,thecountryhasstartedrollingoutthepeak-shavingcapacitytradingmarketmechanism.Thepeak-shavingcapacitymarketprovidesqualifiedthermalpowerplantswithadditionalreimbursementproportionaltotheirgenerationcapacity.Thehighertheflexibilityofthethermalplant'soutput,thehigherthecapontheoffer.TheNorthChinaelectricitymarkethasofficiallylaunchedapeak-shavingcapacitymarketonNovember1,2021,ofwhichtheVREinstalledcapacityshareissecondonlytotheNorthwestregiongrid.Fujianandotherprovinceshavealsoannouncedmarketoperatingrules,andtheformalmarketlaunchisonthearrow.Inaddition,thelooseningofthefloatingrangeofcoal-firedpowerelectricitypricesandtheestablishmentofinter-provincialpowerspottradingmarketreflectsthecountry'sreconsiderationofthecommercialvalueofflexiblethermalpowerassets.The13thFYPtargetforthermalpowerretrofittingwas133GWofcombinedheatandpower(CHP)unitsand82GWofpurecondensingunitsinNorthChina.However,bytheendof2019,57.75GWofcoalpowerflexibilityretrofittinghadbeencompleted,whichisonlyone-fourthofthetargetretrofittingcapacity.Inanalyzingthecauseforthis,webelievethattheunsecuredreturnfromtheauxiliaryservicemarketisthemainreason.Auxiliaryservicereimbursementisaffectedbythedemandloadandweather(henceVREgeneration),coupledwithilliquidmarkettransactions.Therefore,thermalpowerplantsdidnotreceiveeconomicincentivesasforecasted.Accordingtostatistics,only76transactionsweremadeinthepeak-peakingauxiliaryservicemarketintheentireNorthChinaPowerGridbetweenJanuaryandApril2019.Thecostofflexibilityretrofittingisreal,butthereisalargeuncertaintyofreturn,whichrestrictsthermalpowerplantsincarryingoutflexibilitytransformation.Retrofittingscaletoreach200millionkWCommercialattributesofflexibleCFPPTheGreenLeapThesupplyside–powergenerationandtheelectricitygrid12TheNationalEnergyAgencysetsthegoalofflexibilityretrofittingduringthe14thFYPperiodto200GW.Inourview,strongflexibilitydemandfromVREgridintegrationandelectricitymarketmechanismsprovidessufficientdrivingforcesforthermalpowerretrofittingdevelopmentduringthe14thFYPperiod,andthetargetof200GWisexpectedtobereachedinfullorevenexceeded.ThetechnicalroutesofCFPPretrofittingcanbedividedintotwocategoriesingeneral.Thefirstcategoryistheretrofittingofpurecondensingunits(powergenerationonlywithoutheatsupply).Forpurecondensingunits,theproblemwithflexibilityretrofittingishowtomaintainstablecombustionatlowload.Flexibleunitsinvolvedinpeak-shavingserviceneedtohavetheabilitytoadjusttheloadquicklyandoperatecontinuouslyatlowloads,whichdeviatesfromtheoriginaldesignparametersofhighloadconditions.Flexibilityretrofittingforsuchunitsrequiresprocessandequipmentadjustments,ofwhichthemostcriticalequipmentistheboiler.Inordertomeettherequirementsofstablecombustioninthenewoperatingconditions,specificimprovementsneedtobetaken,includingoxygen-richcombustion,plasmacombustionstabilizationtechnologyandcoaldustseparatormodification;ontheotherhand,environmentalsystememissionsarealsokeyfactorslimitingthelow-loadoperationoftheboiler.Thedenitrificationsystem,thedustcollectorandthedesulfurizationsystemmustbemodifiedtoensureefficientoperationunderlow-loadconditions.ThesecondcategoryistheretrofittingofCHPunits.Thistypeofretrofittinggenerallydoesnotinvolvechangestotheboiler.Themainissuehereisthedecouplingofelectricityandheatgeneration,forwhichtherearetwomeansofretrofittingsolutions.Thefirstisturbinemodificationwiththeadditionofdesuperheaterorlow-pressurebypasses;however,partoftheenergyisdissipatedasheatandwasted.Theother,moreoptimalsolutionincludesheatstoragetanks,withsaltorhotwater.Thestoragetanksallowexcessenergytobestoredandlaterdistributedwhenneeded.MarketsegmentsandleadingplayersExhibit12:RetrofittingTechnologiesandtheircosSource:Publicdocuments,MioTechResearchRetrofittingtechnologyApplicableCFPPtypeCostBoilermodificationPurecondensingMediumHighCombinedheatandpowerHeatstoragetank(hotwater)CombineheatandpowerLowTurbinemodification,w/additionofdesuperheaterorlow-pressurebypassVeryhighCombinedheatandpowerHeatstoragetank(moltensalt)TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid13WeexpecttheproportionofpurecondensingunitsandCHPunitstoberetrofittedinthe14thFYPandthe13thFYPtobeapproximatelythesame,totalingabout80GWofpurecondensingunitsandabout120GWofCHPunits.AssumingCHPunitsadoptthehotwaterstoragetanktechnology,overallmarketsizeforflexibilityretrofittingduringthe14thFYPperiod(2020-2025)canreachRMB25billion,whichisover200%increasefromthe13thFYPperiod.Atpresent,theflexibilityretrofittingsegmentmainlyconsistsofplayerswhowerepowergeneratingequipmentsupplierstoCFPPpowerstations.Theessenceofflexibilityretrofittingistheredesignandmodificationofcombustion,powergenerationandheatingequipmentandprocesses,whichrequiresclosecooperationbetweenCFPPoperatorsandretrofittingsolutionproviderstodeveloptailoreddesignandimplementationplansaccordingtospecificconditions.Powergeneratingequipmentsuppliershaveanaturaladvantageoverthird-partyserviceprovidersbecauseoftheirrichexperienceandknow-howinbothdesignandequipment,andtheircloseworkingrelationshipswiththermalpoweroperators.MajorplayersincludeXiziCleanEnergy(002534.SZ),ShanghaiElectric(601727.SH)andothers.Transitionpowergeneratorsholdingflexiblethermalpowerassetswillalsobenefitfromthetrend.Affectedbytheabove-mentionedregulatorynotice,newVREprojectinvestorswillhavetoconsiderthecostofflexibilityresourcesinthetotalinvestmentcostoftheproject.AccordingtoourcalculationonCapexandoperationalcost,CFPPflexibilityretrofitscostabout0.14RMB/kWh,substantiallylowerthanthe0.55RMB/kWhofelectrochemicalenergystorageand0.18RMB/kWhofpumpedstorage.Therefore,FlexibleCFPPisthemosteconomicalflexibleresourceatthemoment.TransitionpowercompanieswithlargeCFPPunitswillhavetheedgeinthecostcompetitionofVREinvestmentprojectbidding.ListeddomesticthermalpowercompaniesincludeHuanengPowerInternational(600011.SH,00902.HK),HuadianPowerInternational(600027.SH,01071.HK),ShanghaiElectricPower(600021.SH),etc.Powergeneratingequipment:XiziCleanEnergy(002534.SZ)Thiscompanyiscurrentlythelargestdomesticresearch,development,designandmanufacturingbaseforwasteheatboilers,andhastransformedfromasingleproductmanufacturerintoasupplierofenergy-savingandenvironmentalprotectionequipmentandasystemsolutionproviderofenergyharvesting.Thecompanypreviouslyprovidedboilerequipmentforthermalpowercompanies.InearlyNovember2021,itannouncedadecisiontoacquire51%ofHepuEnergy,acompanymainlyengagedinthermalpowerunitflexibilityretrofitting.Thecompany'sflexibilityretrofittingandenergystoragebusinesswillusethenewacquisitiontogrowfasterandbecomeamarketleader.Thecompanyhasdevelopeddemonstrationprojectsformoltensaltenergystorage.Powergeneratingequipment:ShanghaiElectric(601727.SH)ShanghaiElectricisoneofthelargestpowerequipmentmanufacturingenterprisegroupsinChina,focusingonthreemajorfields:energyequipment,industrialequipmentandintegratedservices.Thecompanyleadsintraditionalthermalandnuclearpowerequipment,andhasastrongtrackrecordinwindpower.Ithasthelargestshareoftheoffshorewindpowermarket.ThecompanyhasprovidedintegratedserviceprogramsonCFPPretrofittingandupgradingbasedondemandforenergy-saving,heatsupplytransformationandflexibilityretrofittingofpowerplants.CompanyimplicationsTheGreenLeapThesupplyside–powergenerationandtheelectricitygrid14Transitionpoweroperator:HuanengPowerInternational(600011.SH,00902.HK)HuanengPowerInternationalPowerCo.,Ltd.develops,constructs,operatesandmanageslarge-scalepowerplantsthroughoutChina,andisoneofthelargestlistedpowergenerationcompaniesinChina.Duringthe13thFive-YearPlanperiod,thecompany'srenewableenergydevelopmenthasbeenrapid,reachingfirstplaceinitsdomesticmarketshareofwindpowerandsecondplaceinphotovoltaic,basedonpowergenerationcapacity.Transitionpoweroperator:HuadianPowerInternational(600027.SH,01071.HK)HuadianPowerInternationalPowerCo.,Ltd.isoneofthelargestintegratedenergycompanies,whosemainbusinessistheconstructionandoperationofpowerplants,includinglargeandefficientcoal-firedandgas-firedgeneratingunitsandvariousrenewableenergyprojects.Thecompanyisquicklytransitioningintoarenewableenergyoperator.Thecompany'spowergenerationassetsarelocatedin14provinces,autonomousregionsandmunicipalitiesacrossChina.Transitionpoweroperator:ShanghaiElectricPower(600021.SH)ShanghaiElectricPowerCo.,Ltd.isalistedcompanyunderStatePowerInvestmentGroupCo,andthemainpowerproviderforShanghaiCity.Thecompanyiscommittedtothedevelopmentofcleanenergy,renewableenergy,andcirculareconomy.Thecompanyholdscoal-firedthermalpowerassetswithhighefficiencyparameters,windpower,solarpowergenerationanddistributedenergyplants.2.EnergyStorageSystem(ESS)ScaleswithRisingVRECapacityEnergystorageisreachingacriticalpointofdevelopment.Asmoresupportivepoliciesfortheenergystorageindustryareintroduced,investmentintheenergystoragesectorwillcontinuetoflow,drivingthecommercializationofenergystoragetechnologiesandextendingintomoreapplications.Fromthesectoralmicroperspective,photovoltaicandwindpowerarecurrentlyinthelategrowthandearlymaturephaseofthebusinessgrowthcycle,whichmeanslarge-scaledevelopmentiscommerciallyviable.Ontheotherside,ESSstartedlateandiscurrentlylimitedtoasmallrangeofapplications,whichmeansithasnotyetreachedthe“outbreak”period.Withongoinglarge-scaledevelopmentofphotovoltaicandwindpower,ESSwillsoonreachakeyinflectionpoint,allowingittobeusedwidelyincommercialapplications.Shiftingroleofcoal-firedpowerplantsTheapplicationofESSinthepowersystemisplacedinthreesegments:thepowergenerationside,thegridsideandthedemandside.•Onthepowergenerationside,ESSmainlyplaystheroleofstabilizingtheoutputpowerofVREsupplyandactingasabackupcapacityofthegrid•Onthegridside,ESSregulatespowersystemfrequencyandimprovetheefficiencyoftransmissionanddistributionequipment•Onthedemandside,ESSisanecessityfordistributedVREinstallations,andelectricityconsumerscantakefulladvantageofpeakandvalleyelectricitypricedifferencewithESSinstalled.ArisingproportionofVREintheenergysupplywillgiverisetoESSapplicationsineverysegmentofthepowersystem,duetoitsroleinmeetingtherequirementsofbalancingpowersupplyanddemand,therebystabilizinggridoperation.TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid15PolicyimplementationonthegroundAsanimportantpartofChina'sstrategicemergingindustries,ESShasreceivedcontinuousattentionfromthestateinrecentyears.Policiesarerolledouttoensuresustainabledevelopmentoftheenergystorageindustry.InMarch2016,theenergystorageindustrywasofficiallylistedinthenationaldevelopmentplan.InSeptember2017,NRDC,MoF,MinistryofScienceandTechnology,MinistryofIndustryandInformationTechnologyandNationalEnergyAgencylaunchedGuidanceonPromotingtheDevelopmentofEnergyStorageTechnologyandIndustry,puttingforwardthedevelopmentgoalsforthenext10years,whichaimstobringtheESSindustryfromtheearlystageofdevelopmentintothelarge-scaledevelopmentstage.Since2020,nationalandlocalgovernmentshavecontinuedtopromulgatemorespecificguidanceandimplementationplanssummarizedinExhibit16).Overall,therearethreepositivesignalsatthepolicylevel:•FirstisthestrongsupportfortechnologyR&Dandindustrychainenterprises.Thekeytotherapidformationofthescaleeffectliesinperformanceimprovementsandcostreduction,andthevastmajorityofthetechnicalrouteofenergystorageisinthetechnicalembryonicstage.Forthis,policysupportisparticularlyimportant.•Secondly,policiessetoutproportionalallocationrequirementsofenergystoragecapacityforVREinstallations.Thisprovidesaguaranteeddomesticdemandforlarger-scaleenergystorage.•Finally,furtherexplorationofelectricitymarketreformisencouraged,whichshouldimprovetheeconomicfeasibilityofESSontherevenueside.Exhibit13:Relevantnationalandlocalpoliciesforenergystorage(partial)DepartmentPolicyPublishdateNationallevelpolicies(partial)ContentNationalEnergyAgencyGuidingOpinionsonEnergyWorkin2020Strengthensupportforenergystorageindustry,andstudyandimplementpoliciestopromotethedevelopmentofenergystoragetechnologyJun-20NationalDevelop-mentandReformCommissionNoticeonFurtherImprovementofTime-of-useTariffRequiringthetime-of-useelectricitypricedifferencetobenolessthan4:1.Jul-21NationalDevelop-mentandReformCommission,NationalEnergyAgencyNoticeonKeyWorksin2021Widentime-of-usepricedifferences,andimplementtheseonbothgenerationanddemandsidesoftheelectricitysystem.Dec-20NationalDevelop-mentandReformCommission,NationalEnergyAgencyGuidingOpinionsonAcceleratingtheDevelopmentofNovelEnergyStorageSystemBy2025,realizingthetransformationofnovelenergystorageindustryfromtheinitialstageofcommercializationtolarge-scaledevelopment,withaninstalledcapacityofmorethan30GW.By2030,thetargetistoachievefullmarket-drivendevelopmentoftheenergystorageindustry.Jul-21TheGreenLeapThesupplyside–powergenerationandtheelectricitygridDepartmentPolicyPublishdateProvincialandlocallevelpolicies(partial)ContentQinghaiProvincialDevelopmentandReformCommissionNoticeontheIssuanceofCertainMeasurestoSupporttheDevelopmentofEnergyStorageIndustryInprinciple,theenergystoragecapacityofnewlybuiltrenewableenergyprojectsshouldnotbelessthan10%oftheinstalledcapacityoftheproject,andthedurationlengthofenergystorageshouldbemorethan2hours.Jan-21DatongMunicipalPeople'sGovernmentImplementationOpinionsofDatongCityonSupportingandPromotingtheHigh-QualityDevelop-mentofEnergyStorageIndustryEnergystorageindustryreachesaboutRMB10billionandbecomesoneofthepillarindustriesinDatong.Jan-21NingxiaProvincialDevelopmentandReformCommissionGuidanceonAcceleratingtheHealthyandOrderlyDevelopmentofEnergyStorageintheAutono-mousRegionEnsuringcapacityofenergystoragefacilitiestobenolessthan10%oftheinstalledcapacityofnewenergy,andthedurationlengthofenergystorageismorethan2hoursJan-21Source:NationalEnergyAdministration,DevelopmentandReformCommission,localgovernmentwebsites,MioTechResearchStronggrowthinbothglobalanddomesticmarketsAccordingtostatisticsfromtheChinaEnergyStorageCommittee(CNESA)oftheChinaEnergyResearchAssociation(CERA),thecumulativeglobalinstalledcapacityofenergystoragegrewsteadilyfrom2016to2020,withgrowthratesremainingat2%-3.5%.Bytheendof2021,theglobalinstalledcapacityofenergystorageprojectsinoperationreached209GW.China'senergystorageinstallationmaintainedahighergrowthrate,withaCAGRof10%from2016-2020.AccordingtoCNESAstatistics,thecumulativeinstalledcapacityofenergystorageinChinashouldreach46.1GWby2021,up30%from2020's35.6GW.Fromtheperspectiveofindustrydevelopment,thecurrentenergystorageindustryisrepresentedbypumpedstorageandelectrochemicalenergystorage.PumpedstorageisthemostmaturetechnologywithhighestinstallationacrosstheglobeandinChina.Bytheendof2020,theshareofpumpedstorageintheglobalenergystoragecapacitywas90.3%;electrochemicalstoragerepresented7.5%with14.2GWinstallation.ThesharestructureofChina'senergystorageindustryisbroadlysimilartotheglobalstructure;however,electrochemicalenergystorageaccountedfor9.2%ofthesharein2020,correspondingtoaninstalledcapacityof3.3GW,whichwashigherthantheglobalaveragelevel.16TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid17In2019,theNDRCclarifiedthatgrid-sideenergystoragecannotbeincludedinthecostofelectricitytransmissionanddistributionprices,causingESSdevelopmenttohitatrough.In2020,theindustrysawhighgrowthduetocostreductionsinESSandthestategrid'sincreasinginvestment.Theinstallationexceeded1GWinpowerratingand2.3GWhinenergycapacity,ora168%YoYgrowth.Thecumulativeinstalledcapacityreached26GWwithhugeroomfordevelopment.Exhibit14:InstalledEnergyStorageCapacityinChinaandWorldwide(GW),2017-2021Exhibit15:CumulativeInstalledEnergyStoragebyTechnologyTypeinChina(left)andWorldwide(right),2017-2020Source:CNESA,MioTechResearchPumpedStorageFlywheelElectrochemicalMoltensaltCompressedairPumpedStorageFlywheelElectrochemicalMoltensaltCompressedair80%201620182019202085%90%95%100%80%201620182019202085%90%95%100%Exhibit16:Electrochemicalenergystoragenewinstallationsandcumulativeinstalla-tionsinChina,inunitofGWandGWh,2014-2020Source:CNESA,MioTechResearch2.5600%500%400%300%200%100%0%-100%2.01.51.00.50.020140.20.10.00.10.10.10.10.50.50.80.91.22.30.12015201620172018201920205120%100%80%60%40%20%0%4321020140.40.20.20.50.70.30.81.41.62.42.64.70.8201520162017201820192020Newinstallationinpowerrating(GW)Newinstallationinenergycapacity(GWh)YoY(%)Cumulativeinstallationinpowerrating(GW)Cumulativeinstallationinenergycapacity(GWh)YoY(%)Source:CNESA,MioTechResearch00.0%20.0%16.0%30.0%24.0%12.0%8.0%4.0%201720182019202020215101520253035404550InstallationCapacity,china(GW)YoYchange(%)201720182019202020211601651701751801851901952002052100.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%InstallationCapacity,china(GW)YoYchange(%)TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid18PumpedstoragePumpedstorageiscurrentlythemosttechnologicallymatureandeconomicallyoptimalESSsystem,particularlysuitableforlarge-scaledevelopment,andthereforeaccountsforthehighestshareofallenergystoragetypes.Pumpedstorageworkssimilartothatofareversehydropowerplant.Itrequirestworeservoirs,upperandlower.Itconsumeselectricityinthetroughtopumpthewatertotheupperreservoir,andreleasesthewaterfromtheupperreservoirattimesofpeakdemandtogenerateelectricity.Theefficiencyofpumpedstoragepowerplantsisabout80-82%,i.e.,1kWhofelectricityconsumptionresultsin0.8-0.82kWhofelectricityregeneration.Itslifespanisclosetothatofconventionalhydropowerplants,capableofoperatingfor80-100years.Thedevelopmentpaceofpumpedstorageisguidedbythegovernment.TheNationalEnergyAgency'sMedium-andLong-termDevelopmentPlanforPumpedStorage(2021-2035)statesthatby2025,thetotalscaleofpumpedstorageshallexceed62GW;by2030,thetotalscalewilldoublethenumberabout120GW.GiventheestimatedaveragecostofpumpedstorageofRMB5,516perkilowatt,pumpedstorageinvestmentwillbeaboutRMB170billionduringthe14thFYP,andupto500billionby2030.Thepumpedstoragevaluechainincludesequipmentmanufacturing,engineeringdesignandconstruction,andpowerplantoperation.Theupstreamcomponentistheequipmentmanufacturingindustry,withcoreequipmentincludingturbines,pumps,generatorsandtransformers.Themidstreamcomponentmainlyconsistsofdesigninstitutes,engineeringcompanies,andpowerplantoperators.Thedownstreamismainlytheauxiliaryserviceapplicationsofpumpedstoragepowerplantsinthegridsystem,includingpeak-shavingandvalley-fillingfunctions,andfrequencymodulation.Exhibit18:HistoricalInstalledCapacityandForecastofDomesticPumpedStorage(GW)140.0120.0100.080.060.040.020.00.020172018201920202025E2030EExhibit17:EnergyStorageInstallationsbyTechnologyTypesSource:CNESA,MioTechResearchPumpedStorageFlywheelElectrochemicalMoltensaltCompressedair90.90%6.90%1.70%0.20%0.20%TheGreenLeapThesupplyside–powergenerationandtheelectricitygridDongfangElectric(600875.SH)andHarbinElectric(1133.HK)arethetwolargestate-ownedenterprisestakingthepredominantmarketshare.OtherprivateandforeignenterprisessuchasZFHoldings(002266.SZ)andToshibaHydropoweroccupyasmallpercentage.TheStateGridandChinaSouthernPowerGridarethetwomainpumpedstoragepowerplantoperators.Asof2020,StateGridhas28pumpedstoragepowerplantsinoperationwithaninstalledcapacityof23GW,and35plantsunderconstructionwithaninstalledcapacityof48GW.SouthernPowerGridhas6plantsinoperationwith7GWcapacityand5underconstructionwith5GWcapacity.Thedesign,engineeringandinstallationsaremainlyundertakenbyChinaPowerConstruction(601669.SH)andChinaEnergyConstruction(601868.SH).Exhibit19:PumpedstorageindustrychainSource:Publicinformation,Wind,MioTechResearchTurbineGeneratorPlantdesignPeakshavingValleyfillingFrequencymodulationEmergencybackupPhasemodulationEngineeringandconstructionPlantoperationInstallationandtestingGridconnectionPumpValveSpeedAirgovernorcompressorAuxiliaryFrequencyregulatorSubstationSurveillanceUpstream-EquipmentDownstream-GridIntegrationMidstream-EngineeringandOperationExhibit20:NumberandinstalledcapacityofpumpedstoragepowerplantsSource:StateGrid,ChinaSouthernPowerGrid,MioTechResearchStateGridChinaSouthernPowerGridNumberofpumpedstoragepowerplantsInstalledcapacityofpumpedstoragepowerplantsinoperationinoperation283523.41GW4.85GW7.88GW5.4GW65underconstructionunderconstruction19TheGreenLeapThesupplyside–powergenerationandtheelectricitygridElectrochemicalEnergyStorageElectrochemicalenergystorageisbeingrapidlylaidout.Thehigh-powerdensityandhigh-energydensitypropertymakeselectrochemicalenergystoragethemostversatileESStype.Comparedwithothertechnologies,electrochemicalESShastheadvantagesofgoodequipmentmobility,fastresponse,andhighcycleefficiency.Inaddition,costreductionhasshownanacceleratedtrend,whichprovideselectrochemicalenergystoragewithapromisingcommercializationfuture.AccordingtoRockyMountainInstitute’sestimation,by2050,electrochemicalenergystorageinChinacouldreach510GWininstallationcapacity,farexceedingthescaleofpumpedstorageof140GWbythen,andbecomethemostdominantformofelectricenergystorage.Electrochemicalenergystoragetechnologiesmainlyincludelithiumbatteries,flowbatteries,andsodium-sulfurbatteries,amongwhichlithiumbatteryenergystorageisthemostmaturetechnologyatpresent.Inthevaluecompositionofenergystoragesystems,thebatterymoduleandinverterarethemostexpensiveparts.(1)Thevalueofthebatterymoduleisthehighest,accountingfor60%ofthevalue;thequalityofthebatterycells(energydensity,cycletimes,temperatureadaptabilityandsafety,etc.)directlyaffectstheoperationandefficiencyoftheentireenergystoragesystem,andisthereforeakeyelementindeterminingthereturnoninvestmentoftheenergystoragesystem.Chart21:ElectrochemicalenergystorageapplicationsSource:PylonTechnology,MioTechResearch0.47GridPowerGenerationPeakshavingTransmissionandDistributionPowerConsumptionResidentialCommericalSchool,Hospital,Utilities,etcFrequencyregulationVREintegrationAuxiliaryserviceTransmissiondelaypreventionDeferringreinforcementinvestmentsTime-of-usetariffarbitrageElectricitysupplyqualityimprovement20TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid(2)Thevalueofenergystorageinvertersrankssecond,accountingforabout15%-20%oftotalvalue.EnergystorageinvertersaresimilartoPVinverters,buttheformerhasmorediversifiedfunctionsandisthekeypartforintelligentcontrolcapabilityintheenergystoragesystem.Exhibit22:Lithium-ionbatteryenergystoragevaluechainSource:PylonTechnology,MioTechResearchUpstreamRawmaterialLFPNMCLMOLTOGraphiteInverterBatteryMgtGeneratorSideGridSideConsumerSideEnergyMgtCarbonBatterypartsStorageSystemStoragePlantBatteryBatteryLithium-ionCathodeDiaphragmElectrolyteCaseBodyAnodeBatteryPackMidstreamDownstreamComparedwithpumpedenergystorage,electrochemicalenergystorageisnotlimitedtogeographicalresourceallocationsandhasashorterconstructiontimespan,whichtranslatestoahigherdegreeofflexibility.Inaddition,ithassignificantadvantagesindischargeduration,responsetimeandcomprehensiveefficiency.Itthereforehasawiderrangeofapplicationscenarios,andisfullysuitableforbothpower-basedandenergy-basedapplications.Overall,thedevelopmentofelectrochemicalenergystorageisstillinitsinfancy,anditislikelythatavarietyoftechnologieswillcoexistinthefuture.Differenttechnologiesreflecttheiradvantagesindifferentapplications.Exhibit23:ComparisonofvarioustypesofenergystoragetechnologiesTechnologyTypeProjectpowerscaleDischargetimeResponsetimeOverallefficiencyNumberofcyclesPower-basedapplicationsEnergy-basedapplicationsTechnologymaturityNotsuitablePerfectfitMatureMatureEarlyCommer-cializationMatureMaturePerfectfitSuitablePerfectfitPerfectNotsuitablePerfectfitPerfectfitPerfectfit70-8015,000-25,00015,000-25,000300-5002,000-100,000+65-7590minminmsms50-85ms85-951-24h1-24hs-30minm-hm-hMorethan100MWDozenstohundredsofMWKW-tensofMWKW-tensofMWKW-PumpedstorageCompressedAirFlywheelenergystorageLead-acidbatteriesLithium21TheGreenLeapThesupplyside–powergenerationandtheelectricitygridBatteryFlowBatterySodium-sul-furbatteriesSuperCapacitorBatteryHydrogenEnergyStorageSupercon-ductingEnergyStorageEarlyCommercial-izationEarlyCommercial-izationDevelopmentStageDevelopmentStageDevelopmentStagePerfectfitPerfectfit5,000-15,000+10,000fitfitPerfectfitPerfectfitNotsuitableNotsuitablePerfectfitSuitablePerfectlyfit10,0000+10,0000+2,000-6,000ms65-8575-9075-959035-50msmsmsm-hm-hs-ms-mNANANANAhundredsofMWKW-100MW100KW-100MWKW-hun-dredsofMWKW-tensofMWKW-GWTechnologyTypeProjectpowerscaleDischargetimeResponsetimeOverallefficiencyNumberofcyclesPower-basedapplicationsEnergy-basedapplicationsTechnologymaturitySource:CCID,MioTechResearchAtpresent,theindustryisgenerallymostoptimisticaboutlithium-ionbatterytechnology.Withgoodcharginganddischargingperformances,fastresponsetimesandhighenergydensities,lithium-ionbatterieshavetechnicaladvantagesinmanyapplicationsandsignificantcostadvantagesduetothescalingeffectfromtheelectricvehicleapplication.Bytheendof2019,thecumulativeinstallationoflithium-ionbatteriesaccountedformorethan80%ofthevarioustypesofelectrochemicalenergystoragethathavebeenputintooperationinChina.Weexpectthatlithium-ionbatterieswillstillrepresentthemainstreamofthefutureelectrochemicalenergystorageinChina.Despiteconcernsaroundlithium-ionbatteries’currentsafetyandlifecycleperformance,furtherbreakthroughscanbeexpectedwhenthewholevaluechainstartstoscale.In2020,globalnewelectrochemicalenergystorageinstalledcapacityreached10.7GWh,anincreaseof57.4%year-on-year.AccordingtoIEA,theglobalnewinstalledcapacityofenergystorageshouldreach284GWhin2025,withaCAGRof53%.Bythattime,newenergystorageinstallationsinChina’smarketwillreach90GWh,whichrepresents32%oftheglobalinstalledcapacity.MarketprospectofESS22TheGreenLeapThesupplyside–powergenerationandtheelectricitygridTakentogether,theinstalledcapacityofelectrochemicalstorageinChinaisexpectedtoreach66.0GWhin2025,correspondingtoa5-yearCAGRof88.14%,accordingtoourresearch.Theaveragepriceforlithium-ionbatterystoragein2020wasRMB1.8/Wh.Withscalingapplicationsbringingthecostfurtherdown,weexpectthatby2025,theaveragepriceoflithium-ionbatterystoragesystemswillfalltoaroundRMB1.2/Wh.Theoverallmarketsizeofelectrochemicalenergystorage,ledbylithium-ionbatteries,willthenreachRMB250billionduringthe14thFYPperiod.Exhibit24:Globalenergystoragenewinstallationforecast(unit:GWh)GlobalEnergyStorageNewInstalledCapacity2021E51.387.5125.6187283.82022E2023E2024E2025ESource:IEA,BP,MioTechResearchHouseholdCommercialandIndustrialPowerGeneratorsideGridsideCommercialandIndustrialPowerGenera-torsideGridside10.518.6OverseasMarket(outsideofChina)China’sMarket24.43244.814.215.22348.4106.72.16.912.519.421.43.37.210.512.321.31831.441.856.664.31.13.76.710.411.52.14.56.77.913.823TheGreenLeapThesupplyside–powergenerationandtheelectricitygridTheforecastassumesthefollowingforrelevantindicators:(1)In2020,China'slithium-ionbatteryenergystoragecumulativeinstalledcapacitywas0.81GWontheconsumerside.Consideringadailydischargeof2hours,and350daysofoperationperyear,thenthelithiumstorageuser-sidepenetrationratewas0.04%in2020.(2)Consideringthatcostreductionisdrivinguppenetrationrates,weexpectuser-sidepenetrationratestoreach0.02%/0.03%/0.05%/0.08%/0.12%in2021-2025.●ConsumersideChart25:Globalenergystoragenewinstallationsforecast(unit:GWh)0.470501001502002503000204060801001202021E2022E2023E2024E2025EGlobalnewinstallationsYoYchange（%）Exhibit26:Chinaelectrochemicalenergystoragemarketsizeforecast(unit:RMBbn)01002003004005006007008009002021EGeneratorsideConsumersideGridside2022E2023E2024E2025E24TheGreenLeapThesupplyside–powergenerationandtheelectricitygridBasedontheaboveassumptions,wecanestimatethemarketsizeofelectrochemicalenergystorageinChinain2021-2025.Theresultsareshownbelow.(1)Onthegridside,China'senergystorageinvolvedinthermalpowerfrequencyregulationcapacityisgenerally0.5h,and2honotherprojects,soitisassumedthatgrid-sideenergystorageexperiencesadailydischargeof1.5h,running350daysperyear.(2)Consideringthecostreductiondrivingthepenetrationratetofurtherincrease,weexpect2021-2025grid-sidepenetrationratesof0.01%/0.02%/0.03%/0.055%/0.08%.●Gridside(1)ThePVinstallationforecastistakenfromtheChinaPhotovoltaicIndustryAssociation(CPIA),andtheinstalledwindpowerdataistakenfromtheforecastdataofGlobalWindEnergyCouncil(GWEC).(2)Asthescaleofenergystoragecontinuestoexpandinthefuture,thepenetrationrateandcapacityallocationsteadilyincreases.●PowergenerationsideTotalelectricityconsumption(10⁸kWh)PenetrationrateEnergystoragecapacity(10⁸kWh)Gridside75,11078,86682,80982,80991,29791,2970.004%0.010%0.020%0.030%0.055%0.080%2.817.8916.5626.0850.2176.69Exhibit27:2021-2025ElectrochemicalenergystoragemarketsizeforecastCommercialandindustrialelectricityconsumption(10⁸kWh)Energystoragecapacity(10⁸kWh)Cumulativeinstalledcapacity(GW)NewInstalledCapacity(GW)Storagehours(h)Newinstalledcapacityofenergystorage(GWh)PenetrationrateConsumerside2020E50,29752,8125,545258,22561,13664,1930.011%0.020%0.030%0.050%0.080%0.120%5.6710.5616.6429.1148.9177.030.811.512.384.177.0011.030.302222220.700.871.792.844.030.601.401.743.575.678.052021E2022E2023E2024E2025E25TheGreenLeapThesupplyside–powergenerationandtheelectricitygridGridsideCumulativeinstalledcapacity(GW)NewInstalledCapacity(GW)Storagehours(h)Newinstalledcapacityofenergystorage(GWh)0.671.883.956.2211.9718.290.321.212.072.275.756.310.401.823.103.418.639.471.51.51.51.51.51.5Consumerside(GWh)Gridside(GWh)0.601.401.743.575.678.050.401.823.103.418.639.47PVnewinstallations(GW)CentralizedPVshareCentralizedPVnewinstallations(GW)Windpowernewinstallations(GW)CombinedwindandcentralizedPVnewinstallations(GW)EnergystoragepenetrationrateCapacityallocationratioInstalledenergystorageonthepowergenera-tionside(GW)Storagehours(h)Installedenergystorageonthepowergenera-tionside(GWh)Powergenerationside486070809010068%64%62%60%58%56%7%40%50%60%70%80%15%16%17%18%19%20%3338434852564930374042458268808894450.894.386.839.5012.5316.161.809.6316.4024.7135.0848.4822.22.42.62.83Total26TheGreenLeapThesupplyside–powergenerationandtheelectricitygridSource:CPIA,GWEC,NationalEnergyAgency,MioTechResearchPowergenerationside(GWh)Totalinstalledenergystorage(GWh)Averagepriceoflithiumbatteryenergystoragesystem(RMB/Wh)Electrochemicalenergystoragemarketsize(RMBbillion)1.809.6316.4024.7135.0848.482.8012.8521.2431.6949.3866.001.850.40205.56318.66443.662,452641.94792.051.61.51.41.31.2Total(RMBbillion)Total1.Incentivepoliciesareneededtofurtherpromotedevelopmentoftheindustry.Theelectrochemicalenergystorageindustryisstillinitsinfancy.Currently,thepricingmechanismofenergystorageisnotclear,andthereforeprojectinvestmentprofitabilityisdifficulttopredict.Therevenuemechanismofenergystorageneedstobeclarifiedandimplemented,suchas:theparticipationofenergystorageintheauxiliaryservicemarket,theestablishmentofpricingandtradingpoliciesandmodels,theimprovementofpaymentcompensationmechanisms,andtheestablishmentofpowerretailmarketforenergystorageapplicationsindistributedenergygeneration.Ontheotherhand,preferentialpoliciesneedtobeadoptedtosupporttheearlymarket,suchas:extendingtheprocurementsupportforenergystorageprojects,providingfinancialandtaxincentivesforenergystorageprojects.2.Risingupstreamrawmaterialcosthamperscostreductiontrend.Benefitingfromtechnologicalprogress,thecostofelectrochemicalenergystoragehascontinuedtodecreaseinthepast10years.Butatthesametime,energystorageisverysensitivetothecostofthecoreupstreammaterial,includinglithium,electrolyte,andnickel.Theincreaseinupstreampricewillhaveahugeimpactontheeconomicfeasibilityofenergystorageprojects,whichtheninvestorsarereluctanttobuildnewenergystorageprojects.ThebottlenecksPumpedstorage1.DongfangElectric(600875.SH)ThecompanyisoneofChina’smajorpowergenerationequipmentproviders.Thecompany’sbusinessrangesfromthermal,hydro,nuclear,wind,PVandgaspowerplantequipment.In2021,thecompany'srenewableenergyequipmentrevenueforthefirsttimeexceedsthermalpowerequipment.BytheendofApril2021,thecompany'scumulativeproductionofpowergenerationequipmentexceeded600GW,rankingfirstinthecountry,ofwhichthemarketshareofthermalpower,hydropower(pumpedstorage),andnuclearpowerismorethan40%.Companyimplications27TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid282.InverterandenergystoragesystemintegrationThecompanyisaveteranleaderinthePVandenergystorageinvertermarkets.Thecompany’sglobalshipmentsofthree-phase/single-phasestringinvertersisranked6th/5thintheworld,andthemarketshareofhouseholdenergystorageinvertersis15%,thetoppositionglobally.Goodway(688390.SH)Thecompanyfocusesontheresearchanddevelopment,production,andsalesofsolar,windandenergystoragepowerproducts.Mainproductsincludephotovoltaicinverters,windpowerconverters,energystoragesystems,EVdrivesystems,andintelligentenergyoperationandmaintenanceservices.In2020thecompany’sPVinvertershipmentswas35GW,or19%oftheglobalmarketshare.SungrowPower(300274.SZ)Thecompanyisaleadingenergystoragebatterysystemprovider,focusingonthedevelopment,productionandsalesofLFPbatterycells,modulesandenergystoragebatterysystems.Thecompany'sownbrandhouseholdenergystorageproductssalesin2019accountedforabout8.5%ofthetotalglobalshipments,rankingthirdintheworld.PylonTechnology(688063.SH)Electrochemicalenergystorage1.Lithium-ionBattery2.ChinaPowerConstruction(601669.SH)Thecompanyisaleadingengineeringenterpriseintheglobalpowerplantdevelopment.Withastrongtechnicalbackgroundandrichengineeringexperiences,thecompanyownsaboutan80%ofshareinthedomesticpumpedstorageengineeringmarkets.In2020thecompanywonRMB10billionofpumpedstorageprojectcontracts.Thecompanyistheworld'sleadinglithium-ionbatteryprovider,focusingontheresearch,development,productionandsalesofbatterysystemproductsforelectricalvehicleandelectrochemicalenergystorageapplications.Thecompany’srevenuefromsalesofbatteryproductsforenergystoragesystemrevenueincreased219%YoYin2020,accountingfor4%oftotalrevenue,anincreaseof2.6pct.Inthepasttwoyearsthecompanyparticipatedinanumberoflarge-scaleenergystorageprojects.CATL(300750.SZ)TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid29Thedigitalizationofthepowerindustryisnotjustaboutempoweringtheindustrywithdataandinformationtools,butalsoaboutmaximizingthepotentialofpowerreformbasedondataandmarketization.Digitalizationofthepowersectorhasnotbeenwidelynoticedbythemarketduetothecomplexityofitssystemsandtechnologies,andthemonopolizingnatureoftheindustry.Thepowersector,duetoitsownneedforalargeamountofreal-timepowergenerationandconsumptiondata,hashigherdigitalizationpotentialcomparedtotraditionalenergyandmanufacturingindustries.Thecontinuedpromotionofdecarbonizationandelectricitymarketreformwillalsobringmoreapplicationscenariosandmarket-orientedinvestmentopportunitiesfortheapplicationofenergyITinthepowersystem.DecarbonizedgridcallsforbroaderapplicationofenergyITThepowergridisanetworksystemthatconnectspowerproducersandconsumersforthepurposeoftransmittingelectricity.Thepowergridincludesthreecoreaspectsofthepowersystem:powertransformation,powertransmissionandpowerdistribution.Atpresent,China'spowersystemisinACmodeandreliesonthermalpower.Inthecontextofdecarbonizationtargets,thecombinedgenerationofwindpowerandPVgenerationrosetoabout11%oftotalelectricityconsumption2021,andthiswillfurtherincreaseoverthecomingyears.VREintegrationandelectricitytradingmarketcallfordigitaltransformationofthegridExhibit28:ShareofVREinelectricitygenerationinChina,2015-2030ESource:ChinaElectricityCouncil,MioTechResearch20%22%24%16%12%8%4%9%16.5%22%4%0%201520202025E2030ETheGreenLeapThesupplyside–powergenerationandtheelectricitygrid30•July2021,NDRCissuedtheNoticeonFurtherImprovingtheTime-of-useTariffMechanism,whichaimstoformaneffectivemarketincentivemechanismtostimulatethecommoditypropertiesofelectricity.•In2021September,GreenElectricityTradingPilotWorkPlanwasofficiallyapproved.Greenelectricitygeneratedfromwindpowerandphotovoltaicpowerplantsarepricedseparatelyforonlinetradingpurposes.259marketentitiesin17provincesparticipatedandtraded8,000GWhofgreenelectricity.AccordingtoChinaElectricityCouncil’sforecast,greenelectricitytradingwillaccountforabouthalfofthetotalamountofgreenelectricitygenerationinthenextfiveyears.•InNovember2021,theStateGridissuedtheInter-provincialElectricitySpotTradingRules,markingtheinitiationofChina'sinter-provincialandinter-regionalelectricitymarket,whichallowslargeconsumersandelectricitysalescompaniestoparticipateintrading.•InJanuary2022,NDRCissuedGuidingOpiniononAcceleratingtheConstructionofaNationalUnifiedElectricityMarketSystem,aimingattheinitialcompletionofanationalunifiedelectricitymarketsystemby2025.Inthefuture,theelectricityspotmarket,greenelectricitytrading,auxiliaryservicetradingmarketandotherformsofelectricitytradingmarketswillexistatthesametime.Thetimeliness,accuracyandeffectivenessrequirementsfortransactiondataprocessingwillsignificantlyincrease.ThenewgenerationofICTtechnologies,representedbycloudcomputing,AI,5G,andothers,providesabackbonedigitaltransformationofthepowergrid.Thesmartgridconceptallowsforhighlyintegratedpowerflow,informationflowandbusinessprocesses.Throughtheapplicationofnewinformationtechnologiesinthegridsystem,itisexpectedthatintelligentsensingandreal-timemonitoringwithinthephysicalgridwillbecomepossible.Thiswillhappenbyminingandanalyzingreal-timedatatodynamicallyoptimizedecisionmakingprocessesandenhancetheoperationalflexibilityofthepowergrid.Thetotalinvestmentinpowergridduringthe14thFYPisatarecordhighAccordingtotheStatesGrid’sgeneralplanningreport,thetotalplannedinvestmentinthestategridfrom2009to2020isRMB34.5trillion,ofwhichRMB384billionisinvestedingriddigitalization,accountingfor11%ofthetotalinvestment.Inthelastthreestages,theproportionofdigitalizationinvestmenttototalgridinvestmentis6%,11%and12%respectively,graduallyincreasing.•InNovember2020,theProposaloftheCentralCommitteeoftheCommunistPartyofChinaonFormulatingthe14thFive-YearPlanforNationalEconomicandSocialDevelopmentandtheVisionaryGoalsfor2030proposedtheconceptof“newinfrastructure”,thepowerindustryislistedasoneofthekeyareasforconsideration.•InDecember2021,theCentralEconomicWorkConferencereleasedadocumenton"moderatelyover-investingininfrastructure",andthemaindirectionofthisroundof"newinfrastructure"willfallontheconstructionofenergystorage,ultra-highvoltagetransmission,andsmartgrid.•InJanuary2022,theStateCouncilissuedthe14thFive-YearPlanfortheDevelopmentofDigitalEconomy,whichincludespromotingthedigitaltransformationofthepowerindustry.Inrecentyears,anumberofpolicieshaveshownthedeterminationofthegovernmenttoadvancethedigitalizationofthepowergrid.FavorablepoliciestopromotegriddigitalizationTheGreenLeapThesupplyside–powergenerationandtheelectricitygridDuringthe14thFYPperiod,theStateGridandtheChinaSouthernPowerGridwillinvestatotalofmorethanRMB2.9trillioninpowergrids,andifregionalpowergridcompaniesoutsidethetwomajorpowergridsareincluded,thetotalinvestmentinthenationalgridduringthe14thFYPisexpectedtoreachRMB3.0trillion.Source:TheStateGrid’sIntelligentPlanningGeneralReportExhibit29:DigitalizationinvestmentbytheStateGrid,inRMBbn,2009to20200.62.21.75.610.13.310.62%6%5%16%30%10%31%2.89.136.53857.96.224.42%5%21%22%33%4%14%2.512.536.645.650.55.222.11%7%21%26%29%3%13%5.923.874.889.2118.514.757.12%6%19%23%31%4%15%Investment(RMBbn)PctInvestment(RMBbn)Investment(RMBbn)PctPctInvestment(RMBbn)Pct1stPhase（2009-2010）2ndPhase（2011-2015）3rdPhase（2016-2020）TotalPowerTransformationSegmentsPowerGenerationPowerTransmissionPowerDistributionPowerConsumptionSchedulingCommunicationPlatform3,841100%1,750100%1,750100%341100%TotalExhibit30:DigitalizationinvestmentbytheStateGrid,inRMBtn,12thFYPto14thFYPStateGridRegionalgridsGridstotalChinasouthernPowerGridSource:TheStateGrid,ChinaSouthernPowerGrid,MioTechResearch3.512thFYP13thFYP14thFYP22.5311.5022.62.20.70.131TheGreenLeapThesupplyside–powergenerationandtheelectricitygridUnprecedenteddemandforenergyITamidfast-tracktransitiontoasmartpowersystemDesigningisanessentialpartoftheinitialphaseofgridconstruction.Thegriddesigningindustrywillbeadirectbeneficiaryofthegrowingconstructionofpowerdistributionnetworks,whilethetransitiontoasmartpowersystemismakingthedigitalizationofdesigningworkscompulsory.Astheneedtotransformthegridappliesnationwide,aone-stop-shopsolutionwillbefavored.Meanwhile,astheadoptionofnewtechnologieshasmadegriddesigningmuchmoreprofessionalandcomplex,turningitfromoriginal2Ddesigningto3Ddesigning,designsoftwarewillneedtobeoptimizedtomeetthehigherrequirements.HenghuaTechnology(300365.SZ).Foundedin2000,thecompanyisequippedwithstrongR&Dcapacity,outstandinginformationtechnologycapabilityandawealthofengineeringexperiencestobringtheemergingtechnologieslikecloudcomputing,IoT,bigdata,mobileInternet,andAItotherolloutofsmartgrids,energysystems,waterconservationandtransportation.Thecompanyownstheintellectualpropertyrightsofitsself-developedsoftwaretodesign3Dtransmissionlines,3Dsubstations,3Dcablesand3Dgriddistributionsystems,whichallowsgeographicinformationinputfrommultiplesources,includinglaserpointcloudandtiltmeasurement.ThesoftwarefunctionsmeetthecriteriondevelopedbytheStateGridanditsoutputsmeetStateGrid’sGIMstandardsandcanbedirectlyreferencedforconstruction.0.471.GriddesignandsoftwaresolutionsWiththeprogressingofstrongsmartgridandpowerIoT,thedemandsarecontinuouslyrisingforautomatedITsystemstooperatethetransmissionanddistributiongrid.TheEnergyManagementSystem(EMS)thatcontrolspowergenerationandtransmissionandtheDistributionManagementSystem(DMS)thatcontrolspowerdistributionandgridloadarenecessaryITsystemstokeepthegridrunningsmoothly.Now,thetwosystemsneedtobesmarterthanever.EMSperformsstimulationandcomputationbasedonreal-timedatatoderivestatusanalysis,tidecalculations,economicoperationcalculations,andstaticordynamicsafeoperationalanalysis,andusesthesetoadjustgridoperationsforimprovedsafetyandefficiency.TheSCADAsystemseamlesslycollectsreal-timedata,includingthevoltages,currentsandpoweroutputsofvariouscomponentsincludingtransformersandlines,thestatusofeachcircuitbreaker,andwhetherabreakerisopenorclosed.Builtonthedata,thesystemcanmonitorandcontrolthesubstations.Source:PowerSourceMotion"ThedifferencebetweenDMSandEMS,EMSandDMSsoftwarerelationshipExhibit31:PowertransmissionanddistributionsmartmanagementPowerGeneratorSubstationConsumerTransmissionDistributionAutomatedschedulingEMSDMSSCADA2.Smartmanagementofpowertransmissionanddistribution32TheGreenLeapThesupplyside–powergenerationandtheelectricitygridEachunitoftheentireprocessfrompowergenerationtoend-userscouldbemadesmartwiththeintegrationofnewsmartproducts:1.Intelligenttransmissionmanagementsystem:Theintelligentmanagementsystemisexpectedtomergethedifferent,separateproceduresoftaskplanning,datacollection,dataanalyticsandstorageintoawholesystem.Itwilltargettheinter-connectionofinternalsystemsdataforin-depthanalysisanddecision-makingtoformacompleteclosedloopofpowerdistributionandoperationalinspection.Itenablesthemanagementoftransmissionlinestobeprecise,systematic,intelligentandvisualized.AnexamplewouldbethesystemdevelopedbyZhongfeiSunway,withmodulesincludingtaskallocation,drone-powereddatacollection,inspectionresultmanager,faulteliminationmanager,statisticsandalertmanager,accountoftransmissionlines,dronedevicemanager,anddroneoperationmonitor.Exhibit32:IntelligentoperationandmaintenanceITproductsforelectricitytransmis-sion,transformationanddistributionSource:MioTechResearchSegmentsRelatedtechnologiesandfunctionsSmartmonitoringtechnologies,suchastransmissionlinechannelvisualizationandconditionmonitoring,imageanalysis,automaticidentificationofrisksanddefects,warningnotifications,droneinspection,etc.Onlinemonitoring,security,environment,andgraphicssystemforsubstationequipment.Theconstructionofautomateddistribution,withtheabilitytoauto-correctsystemfaults,whichcaneffectivelyexecutestatusmonitoringofthedistributionnetwork,faultlocation,automaticfaultisolationandnetworkreconfiguration.TransmissionTransformationsubstationDistributionExhibit33:IntelligenttransmissionmanagementsystemmodulesSource:ZhongfeiSunwayofficialwebsiteMainmodulesMainModule3DVisilizationPlannedTaskMgtDroneInspectionMainInspectionGridResrouceMgtInventoryMgtEquipmentMgtStatisticalReportInboxAuthorizationMgtSystemMgt33TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid2.Intelligenttransformationsubstationmanagementsystem:Themajorityofthequasi-intelligentsubstationsystemsavailablesofarareacombinationofvarioussmallersystems,eachofwhichhasasolefunction.However,thecoreofarealintelligentsubstationsystemisweb,builtondataintegrationtobreaktheinformationbarriersandenabletheinternalandexternalconnectionsofsubstations.Itwillconsolidatethesubstationslocatedindifferentcitiesorcountries.Moreover,theall-in-onemanagementsystemcanidentifypotentialriskswithatoolboxofaccesscontrol,indicatormonitoring,dataanalysisandprojection,andactinresponsetoprovideasafeguardforthesystemequipmentandstaffworkersatsubstations.3.Intelligentdistributionmanagementsystem:Notably,Chinahascalledformoreinvestmentinlevelingupthedistributiongridinthe14thFYPperiodrunningfrom2021to2025.TheStateGridhasdecidedtospendhalfofitstotalinvestmentplannedforthefiveyearsonthedistributiongrid,whichamountstoRMB1.2tn.ChinaSouthernPowerGridaimstoinvestRMB320bn,alsoclosetohalfofitstotalplannedinvestment.Theincreasingnetloadandthelargerroleplayedbyrenewablesinthepowersystemhavepromptedgridcompaniestoimprovetheirdistributioncapability.Theconventionaldistributiongridrunssingleway,whereitonlyreceivesloadfromthegrid,equippedwithastandardtransformerandsimpleprotection,automationandcommunicationdevices.WithVREintegration,theconventionalpassivestyledistributiongridwillbereplacedbyanactivenetworkwithsmallandmedium-sizedpowersources.Thedistributedpowersupplysystemwithtwo-waycurrentsismakingthedistributionnetworkmorecomplexandleadingtoissueswiththequalityofelectricityandthecapacityfactoronthegridside.Receiversoflow-voltageelectricpower,likeenergystoragedevicesandelectricvehicles,requirethedistributionnetworktoadjustthelow-voltageportandenabletwo-waycommunicationposingchallengeswithlineprotectionforbothlow-voltageandmedium-voltagenetworks.Suchchallengeshavegivenrisetotheemergenceofanintelligentdistributionmanagementsystem.Withdemand-sidemanagementtechnologiesandapplications,thesystemcanachievetheoptimaleconomicefficiencytomakethemostoftheloadandensurehigh-qualitypowersupply.Thehighlightofanintelligentdistributionmanagementsystemisahighly-effectivereal-timemonitorthatincorporatesadynamicpowercurve,reversetide,andissueswithpoweroutputadjustment.Exhibit34:ConventionalandfuturedistributiongridmodesHighVoltageHighVoltageTwo-waytideMediumVoltageMediumVoltageVREIntegrationControllableFrequencyRegulatorLowVoltageLowVoltageEnergyStorageandVehicletoGrid(V2G)GridGridConventionalDistributionGridVRE-IntegratedSmartDistributionGrid34TheGreenLeapThesupplyside–powergenerationandtheelectricitygridOntheonehand,theintelligentpowerdistributionmonitorcanleveragethevisual“digitaltwin”toestablishasimulationmodelofthedistributionnetworktoreplacemanualmonitoring.Staffcanrefertothechronologicaleventrecords,waveformrecords,faultrecordstoquicklyanalyzethefaults,locationandresolvetheissuestominimizethetimeofdisruption.Thesystemcancollectthedataforindicatorslikecurrent,voltage,poweroutput,aswellasvoltagefluctuationofeachcircuitanddevice,toanalyzeandmanagethepowerefficiencyofthedistributionsystemandend-usingdevice.Theintelligentdistributionsystemcansignificantlyreducetransmissionlossesateachunitandimprovetheoverallefficiency.Ontheotherhand,automaticandintelligentinspectionapproachestothedistributionsystemareabletosensethestatusandoperationalenvironmentofequipmentseamlesslyamidtheuseofincreasinglycomplexelectricdevicesandpowersources.Itmanagestoimprovethestabilityofthegridanditsabilityforemergencyresponse.Inadditiontothat,ifavideocameraisconnected,thesystemcanretrievetheon-sitegraphicsuponemergencieslikeashortcircuit,andcapturetheobjectwithmalfunctionsbyturningthecamera,whichreducesthetimetoanalyzeandrespondtotheemergencies.DongfangElectronicsCorporation(000682.SZ)Thecompanyisahi-techbusinessgroupcombiningR&D,productionandoperation,technicalservicesandsystemintegration.ItisoneofthemajorsuppliersofChina’senergymanagementsystemsolutions,andalsothekeyhi-techenterprise.SenterElectronicsFoundedin1996,thecompanyhasavarietyofproductsdevelopedonitsindependentintellectualpropertyrightsinthecommunicationsandelectricpowerforotherindustriesandiscommittedtobecomingaleadingproviderofindustry-levelIoTsolutionsinChina.Intheelectricpowerindustry,ithasclientslikeStateGrid,towhichitofferspowersubstation,transmission,anddistributionsolutions.Themainproductsincludeauxiliarymonitoringsystemsforintelligentsubstations,visualinspectionsystemsfortransmissionlines,intelligentactiveoperationandmaintenancesystemsforthepowerstationarea,andelectricpowermobileoperationterminals,ofwhichitstransmissionlinevisualinspectorhasanumberofpatentedtechnologiesapplied.CompanyimplicationsParticipantsintheelectricitymarketincludepowergenerationcompanies,gridoperators,powerdistributionandsalescompanies,tradingagencies,dispatchingagencies,endusers,andenergystoragefirms.Theyhavedifferentneedsfortheinformatizationoftheelectricitytradingmarket:3.DigitalizedElectricityMarket•Forpowersupplyandsalesfirms,anauxiliarydecision-makingsystemforthemarkettradingisneeded,aswellasatrademockingsystemtohelpoptimizethestrategytoprovidemoreaccuratequotes.•Fortradingagencies,theyneedtopurchasemoreadvancedelectricitytradingsettlementandsupportsystems.•Forelectricityconsumers,itisnecessarytomonitorelectricityconsumption,analyzesafetyreal-time,andmanagetheconsumptiontowardsbetterenergyefficiency,allwiththepresenceofautomaticelectricityconsumptionsystemsandsmartmetersystems.35TheGreenLeapThesupplyside–powergenerationandtheelectricitygridYGSOFTINC(002063.SZ)YGSOFTInc.isatechnologyproviderofenergyinter-connection,socialserviceinformationtechnologies,productsandservicesinChina.Ithasspecializedininformation-basedmanagementoflargecorporationsforover30years.Itsmainproductsandservicesincludegroupmanagement,intelligentenergy,intelligentInternetofthings,digitalsociety,etc.NARITechnology(600406.SH)Foundedin2001,NARITechnologyCo.,Ltd.(abbr.asNARI-TECH)isaleadingsupplierofsolutionsforpowerandautomationtechnologiesinChina.Ithasbusinesswith222electricitymarketparticipantsacross14provinces,coveringpowersystemautomation,smartgrid,renewableenergy,railwayautomation,industrialcontrol,energyconservationandenvironmentprotection,powerplantauxiliaryequipmenttechnology,etc.Companyimplications36TheGreenLeapThesupplyside–powergenerationandtheelectricitygrid37II.Thedemandside–sectoraluseofenergyOverview:China’sCommitmentstoDemandSideCarbonEmissionReductionSince1997,thetotalcarbonemissionsinChinahaveshownasteadyupwardtrendalongwiththeeconomicgrowth.Thetrendwascurbedin2014,asthegreaterdecreaseinemissionsperunitofGDPoffsettheeconomicgrowthrate.Alongthetimeline,thecountryrolledouttotalenergyconsumptionandconsumptionintensitycontrolpoliciesinthe12thFYPdocumentsin2014,andsupply-sidestructuralreformin2015.AccordingtothelatestCEADsdata,asof2019,thetotalcarbonemissionreached9.8billiontCO2e,meanwhileemissionsperunitofGDPhasdecreased72%from1997.China'stopthreeindustrieswiththehighestcarbonemissionsareelectricityandheatgeneration,ferrousmetalsmelting,andmining,withannualcarbonemissionsofapproximately4.6,1.9,and1.1billiontonsrespectivelyin2019,accountingfor47%,19%and11%ofthecountry'stotalcarbonemissions.Exhibit1:China’stotalcarbonemissionsandemissionsperunitofGDP,1997—2019(MillionTonsofCO2e)Source：CEADs、MioTechResearch12,00010,0008,0006,000TotalEmission(MiltonsCO2e)EmissionsperunitofGDP(kgCO2e/RMB)4,0002,0001997199819992000200120022003200420052006200720082009201020112012201320142015201620172018201900.000.050.100.150.200.250.300.350.40TheGreenLeapThedemandside–sectoraluseofenergy38Exhibit2:CarbonemissionsoftopfivesectorsinChina(2019)Source：CEADs、MioTechResearchMillionTons5,0004,0003,0002,0001,000ElectricityandheatgenerationFerrous-metalprocessingMineralminingandprocessingTransportationUrbanresidential0Exhibit3:HistoricalcarbonemissionsofthetopfivesectorsinChina,1997—2019199719981999200020012002200320042005200620072008200920102011201220132014201520162017MillionTons5,0004,0003,0002,0001,000ProductionandSupplyofElectricPower,SteamandHotWaterSmeltingandPressingofFerrousMetalsNon-metallicMineralProductsTransportation,Storage,PostandTelecommunicationServicesRawChemicalMaterialsandChemicalProductsSource：CEADs、MioTechResearchTheGreenLeapThedemandside–sectoraluseofenergy39Oneimportanttrendisthattheprimarypolicytargetinfocushasshiftedfromenergyintensitytoemissionintensitycontrol.TheStateCouncilandrelevantMinistrieshaveformulatedhigh-levelpoliciestosettheagendaforenergy-consumptionsectorstoachievethedecarbonizationtargetsinthe2030and2060timeline.Meanwhile,bottom-upcommitmentsfromtheprovincialandmunicipallevelshavecollectivelysetlong-termdevelopmenttargetsforthecarbonpeakingandneutralitygoals.Accordingtoourstudy,17outof31provincialadministrationshavealreadyrolledoutpolicydocumentsrelatedtocarbonpeakingandneutrality,andtherestareintheprogress.Exhibit4:Provinciallevelcommitmentsonachieving“3060”carbongoals(selected)BeijingTianjinHebeiLiaoningHeiLongjiangShanxiTheThirty-eighthMeetingoftheStandingCommitteeofthe15thBeijingPeople'sCongressPromotionalOrdinanceonTianjinCarbonPeakingandCarbonNeutralityShanxiProvincialGovernmentWorkReport2022AcceleratingtheEstablishmentofaSoundGreenLowCarbonCycleDevelopmentofEconomicSystemTaskMeasuresImplementationPlanonPromotingCarbonPeakingandCarbonNeutralityin2021-2023ImplementationOpinionsontheCompleteandAccurateImplementationoftheNewDevelopmentConceptinCarbonPeakingandCarbonNeutralityGoalsAcceleratetheformulationofdocumentsoncarbonpeakingandcarbonneutrality;Promotelow-carbontransformationinenergy,transportation,andconstructionsectors,etc.Promotelow-carbontransformationinenergy,transportation,andconstructionsectors,etc.By2025,theproportionofnon-fossilenergyconsumptionwillreachover13%;theforestcoverageratewillreach36.5%;By2030,theproportionofnon-fossilenergyconsumptionwillreachover19%;theforestcoveragewillreachabout38%,thegoalofcarbonneutralityshallbeachievedby2060.By2025,thevalueaddedofstrategicemergingindustrieswillaccountfor8.5%oftheregionalGDP,theproportionofinstallednon-fossilenergywillexceed50%,theinstalledwindpowerandphotovoltaicpowerwillstrivetoreachmorethan30GW,andnewnuclearpowerinstallationswillreach2.24GW.FormulatetheimplementationplanofcarbonpeakingaccordingtothenationalpolicyFormulatedecarbonizationworkplanandtheimplementationofthecarbonpeakingplanProvincePoliciesCarbongoalsTheGreenLeapThedemandside–sectoraluseofenergy40Asamatteroffact,thecurrentcarbonemissionsituationsareuniqueonprovinciallevels.AccordingtoMioTech'ssatellitedata,thethreeprovinceswiththehighestannualcarbonemissionsin2019areJiangsu,Shandong,andGuangdong,with263,251and220milliontonsrespectively,allofwhichhaveintroduceddecarbonizationpolicydocuments,withJiangsuandShandonghavingformulatedclearquantitativetargets.The17provincesthathaveintroducedcarbonpolicydocumentsarehometoatotalof1.7billiontonsofcarbonemissions,accountingforapproximately56.7%oftotalannualcarbonemissions.Source:Governmentwebsites，MioTechResearchShanghaiPublicInstitutionsGreenLowCarbonCycleDevelopmentActionPlaninShanghaiBy2023,thetotalenergyconsumptionofpublicinstitutionsinthecitywillbecontrolledwithin1.71milliontonsofstandardcoal;carbondioxideemissionswillbecontrolledwithin3.2milliontons,andtheinstalledsolarphotovoltaicwillreach50,000kilowatts.Theenergyconsumptionperunitoffloorarea,comprehensiveenergyconsumptionpercapitaandwaterconsumptionpercapitawillbereducedby3%,3.6%and4.2%respectivelycomparedto2020Exhibit5:Carbonemissions(milliontonsofCO2e)of31provincesinMainlandChinaSource：AMI,MioTechResearch050100150200250300JiangsuShandongGuangdongInnerMongoliaHebeiHeiLongjiangHenanZhejiangShannxiLiaoningXinjiangAnhuiShanxiJilinFujianShanghaiBeijingHubeiTianjinHunanYunnanSichuanGansuGuangxiGuizhouJiangxiNingxiaChongqingHainanQinghaiTibetTheGreenLeapThedemandside–sectoraluseofenergy41TheIndustrialSectorIndustrialmanufacturingisafundamentalsectorthatprofoundlyimpactstheeconomy.Theindustrialsectorhasastrongdemandforupstreamrawmaterials,whiletheimportanceoftheproductsitproducesandsells,whetherprimarymaterialssuchassteelorend-userproductssuchashouseholdappliancesandautomobiles,isubiquitousineverydaylife.InChina,theindustrialsectorhasbeenthebackboneofitsrapideconomicgrowthfordecades.Chinanowhasthelargestindustrialsectorintheworld,aswellasthemostcompleteindustrialsystemandsectors.Withitsintensiveenergyconsumptionandhighgreenhousegasses(GHG)emissionintensity,theindustrialsectorisakeyareaoffocusforChina'scarbonneutrality.GHGemissionsfromtheindustrialsectorconsistofthreetypesofactivities:manufacturingofproducts,supplyofrawmaterials,andprocessinganduseofthefinishedproductssold.Themajorityofemissionsfromindustrialenterprisesfallintoscopeoneandtwo,referringmainlytoemissionsfromthemanufacturingoftheirproducts,ofwhichcarbondioxideaccountsformorethan90%ofdirectemissions.Lessthan10%ofdirectindustrialemissionsconsistofGHGotherthancarbondioxide:methane(fromcarbonblackproduction),fluoride(forrefrigeration)andnitrousoxide(fromacetaldehydeandnitricacidproduction).Emissionsfromtheuseoffossilfuels1)asrawmaterialsforproduction,2)asfuelandpower,and3)frompurchasedelectricitytogetherconstitutetheindustrialsector'sCO2emissions.InChina,theindustrialsectoristhelargestconsumerofenergyamongallsocialsectors.AccordingtotheNationalBureauofStatistics,totalindustrialenergyconsumptionin2020was3,326milliontonsofcoalequivalent(Mtce),accountingfortwo-thirdsofthetotalenergyconsumptionofthewholesociety(4,983Mtce).Exhibit6:Energyconsumption(Mtce)bysocialsectorsinChinain2020Exhibit7:Energyconsumption(Mtce)byindustrialsub-sectorsinChinain202027969393282413644132ResidentialOthersConstructionsAgriculture,ForestryandFisheriesCommerceTransportEnergyProductionandMiningManufacturingSource:ChinaElectricityCouncil,MioTechResearchIronandSteelOtherManufacturingNon-metallicMaterialNon-ferrousMetalFossilFuelProcessingChemicals669598567354353255530TheGreenLeapThedemandside–sectoraluseofenergy42Duetothegovernment’scontinuouspushforsupply-sidestructuralreform,transformationofenergy-intensiveindustriesandothermeasures,China'scarbonemissionintensityintheindustrialsectorhasshownagradualdeclineinthepast30years.However,comparedwiththeothertopfiveeconomiesintheworld,itscarbonemissionintensityisrelativelyhigh,withstilllargepotentialforenergysavingandemissionreductionintheindustrialsector.Exhibit8:Carbonemissionintensityofindustrialenergyconsumptionforthetopfiveeconomiesintheworld,1990-2019Source:IEA,MioTechResearch010203040506070801990199520002005201020152019ChinaUnitedStatesEUJapanGermanyCarbonintensityofindustryconsumption(gCO2/MJ)Theindustrialsectorhasbeenwidelyrecognizedasadifficultareafordecarbonizationduetothecomplexityofindustrialprocessesandthehighcostofemissionreduction,amongotherreasons.Theinvestmentindecarbonizationtechnologiesinindustryhasalsobeenconsistentlylowerthaninsectorssuchasenergy,buildings,andtransportation.Thismakesthepathtocarbonneutralityintheindustrialsectornotasclearasinothersectors.Fromthetechnicalpointofview,therearefourmainpointsofdifficultyindecarbonizingtheindustrialsector.ChallengesandOpportunitiesTheGreenLeapThedemandside–sectoraluseofenergy43•First,carbonemissionsfromrawmaterialsdirectlyconsumedinprocessescannotbesimplyreplacedorremoved,andcanonlybereducedbyimprovingtheprocessefficiency.•Second,fossilfuelsaremostlyusedinindustrialproductiontogeneratehigh-temperatureheat(typicallyreach700°Ctoover1,600°C)forprocessessuchassmeltingandhigh-temperatureheattreatment.Reducingtheseemissionsbyswitchingtozero-carbonelectricitywillbedifficult,asitwillrequiresignificantchangesintheprocessflowandequipment.•Third,industrialprocessesarehighlyintegrated,soanychangetoonepartoftheprocessmustbeaccompaniedbychangestootherpartsofthatprocess.•Finally,industrialplantshavelonglifecycles,oftenexceeding50yearswithregularmaintenance.Changingtheprocessesinanexistingplantrequiresextensiverebuildingorretrofitting,oftenexpensive.Inaddition,economicfactorsaddtothechallenge.Productsfromkeyindustrialsectors,suchassteel,oil,basicchemicalsandnonferrousmetals,areamongbulkcommoditiestradedglobally.Buyersofthesecommoditiesareoftenverypricesensitiveandnotwillingtopayforso-called"greener"or"lowercarbon"productionprocesses.Companiesthatincreasetheirproductioncostsbyadoptinglow-carbonprocesseswillthereforefindthemselvesatacompetitivedisadvantage.In2021,thePartyCentralCommitteeandtheStateCouncilissuedOpinionsontheCompleteandAccurateImplementationoftheNewDevelopmentConceptforCarbonNeutralityandtheActionPlanforCarbonNeutralityby2030,whichtogetherconstitutethetop-leveldesigndocumentforthetwophasesofcarbonneutrality.Regardingthedecarbonizationpathfortheindustrialsector,bothdocumentsmentionindustrialrestructuringandmeanstoimproveenergyuseefficiency,andprovideguidanceontheworkofkeycarbon-controlindustriessuchasironandsteel,nonferrousmetals,buildingmaterialsandpetrochemicalsintheStateCouncil'sprogram.ItisexpectedthattheNationalDevelopmentandReformCommission(NDRC)willissueanofficialversionoftheoverallcarbonneutralactionplanfortheindustrialsectorduring2022,andmayissuedraftopinionsontheimplementationplanforkeyindustriessuchassteel,nonferrousmetals,buildingmaterials,chemicalsandpetrochemicals.Eventhoughtherearemanychallengesmentionedabove,webelievetherearealreadytechnologiesenablingcarbonpeakingpathsthatgraduallyshowuptrendsindevelopment:1.therecyclingandrecoveryofenergy-intensiveproducts,particularlysteel,aluminum,paper,andplastic;2.theefficiencyimprovementofindustrialgeneralequipmentsuchasmotors,transformersandindustrialcontrolequipment;3.wasteheatrecoveryandutilizationforenergygradientuseorpowergeneration.TheGreenLeapThedemandside–sectoraluseofenergy441.Recyclingofenergy-intensiveproducts–steel,aluminum,paperandplasticRecyclingcanreducethedemandforfeedstockprocessing.Particularlyinthecaseofenergyintensiveindustries,recycledproductscansignificantlyreducethecarbondioxidefootprintbyreplacingprocessesofhighenergyconsumptionwithlowerones.InJuly2021,theNDRCreleasedthe14thFive-YearPlan(FYP)forthedevelopmentofcirculareconomy,whichproposedtobuildaresourcerecyclingindustrialsystem,plannedtorecycle60milliontonsofwastepaper,320milliontonsofsteelscrap,20milliontonsofnonferrousmetals,including4milliontonsofcopper,11.5milliontonsofaluminum,and3milliontonsoflead,andtherecyclingindustrytotaloutputvalueofRMB5trillionby2025.Thenationalcarbontradingmarketisphasinginindustries,andtheimpliedcarbonpriceoftheenergy-intensiveproductsshallprovidemoreincentiveforrecycledsubstitutes.Currently,thepowerindustryisincludedinthenationalcarbonmarket.Industrieswithhighestemissions,—petrochemicals,chemicals,buildingmaterials,ironandsteelmaking,nonferrousmetals,andpaper—willbephasedinby2025.Amongthem,steel,aluminum,paperandplasticsareindispensablerawmaterialsorprimaryproducts.Theindustriesarealsocontributorstohighenergyconsumptionandhighcarbonemissions,withconsiderablepotentialforgreatercircularity.Byrecycledvolumeandrecoveryvalue,thetopfourvarietiesarescrapsteel,scrapnonferrousmetal,wastepaper,andwasteplastics,whichareallrelatedtoenergy-intensiveindustries.Tobetterunderstandinaquantitativeway,wehavecalculatedthecarbonemissionreductionpotentialofthefourtypesindetail,asfollows.HighemissionreductionpotentialofrecycledproductsSteelScrapAluminumScrapWasteplasticsPaperandcardboardsExhibit9:PictureofrecyclablematerialsTheGreenLeapThedemandside–sectoraluseofenergy45Recycledsteel:The14thFYP’stargetistorecycle320milliontonsofscrapsteelby2025.Afteryearsofsupply-sidereform,China'scrudesteelproductionhasbeenreducedsignificantly,buttheoverallrevenueofthesteelindustryisstillgrowingsteadily,reachingRMB8.9trillion.Currently,China’ssteelmakerspredominantlyadoptblastfurnaceironmaking,whichisaveryenergy-intensivemetallurgicalprocess,whilescrapsteel’selectricarcfurnaceprocessgreatlyreducescarbonemission.Ifrenewableelectricityisused,theemissionreductionefficiencycanbefurtherincreased.Recycledaluminum:Theprimaryaluminumproductionindustryisoneofthemostcarbon-intensiveindustries.Theelectrolyticprocessforaluminumproductionconsumesahugeamountofenergy.Ontheotherhand,secondary(recycled)aluminumhasonly5%ofthecarbonemissionintensityofprimaryaluminum.The14thFYPproposes11.5milliontonsofdomesticaluminumrecycling.CombinedwithnumberstakenfromtheChinaProductsCarbonFootprintFactorsDatabase,eachtonofrecycledaluminumproductionreducesover15tonnesofcarbondioxideequivalent(tCO2e)comparedtoprimaryaluminumproduction,withanoverallemissionreductionpotentialof173milliontCO2e.Intermsofemissionreductionefficiencyandoverallpotential,recycledaluminumproductionisthemostnoteworthyalternativetoenergy-intensiveindustries.Wastepaper:ThePlanproposes60milliontonsofwastepaperrecyclingduringthe14thFYP.In2020,thecountry’spaperindustrytotalrevenueisRM1.3tnandwastepulpconsumptionrateisabout55%.Whencomparingtheemissionfactorofwastepaperpulpwiththatofvirginpaperpulp,researchhasfoundouttheemissionreductionefficiencyofwastepaperrecyclingis5.42tCO2eperton.Wasteplastics:AccordingtotheNDRCestimates,theplasticrecyclingvolumewillreach25milliontonsin2025,andtherecyclingratewillincreasefrom26.7%to30%thisyear.EachtonofrecycledplasticcanreduceExhibit10:Emissionreductionpotentialofscrapsteel,aluminum,paperandplasticSource:the14thFive-YearPlanfortheDevelopmentofCircularEconomy,"QuantitativeAnalysisofRecyclingandCarbonEmissionReduction",ChinaProductsCarbonFootprintFactorsDatabase,MioTechResearchRecyclingvolume(Millionton,2025)320Blastfurnaceandthefollowingprocesses–electricarcfurnaceprocesses0.6815.085.421.94Aluminumproductionfrommineral–fromscrapaluminumEvery1.25tonsofwastepapermakes1tonofpulp,saving70%ofenergyPlasticproduc-tionfrompetrochemicalprocesses-fromwasteplastic126025417SteelAluminumPaperPlasticTotalEmissionreductionpathway(Bysubstitutingvirginmaterialprocesseswithrecycledmaterial)Emissionreductionefficiency(tCO2e/t）Totalcarbonemissionreduction(MilliontonsofCO2e,2025)21817332549765TheGreenLeapThedemandside–sectoraluseofenergy46Steel,aluminum,paperandplasticrecyclinghasimmenseemissionreductionimplications.Accordingtoourcalculation,thetotalcarbonemissionreductionin2022to2025couldreach2,865milliontCO2e,equivalenttothecarbonsinkof~10millionsquarekilometersofurbanforest–closetothesizeofthewholeofEurope-inoneyear.In2022alone,weforecasttherecyclinglevelofthefourcommoditiestobe670milliontCO2e,almostthreetimestheestimatedannualcarbonremovalfromtheforestsintheentireEurope.AccordingtothedataoftheMinistryofCommerce,China'srecyclingsystemischaracterizedbyhighfragmentationandlowbarriersofentry,withabout159,600recyclingoutlets,1,837sortingcenters,266distributionmarketsand63sortingclusters.Thepolicyispromotingtheintegrationofthetwonetworksof"wasteclassification"and"recycling",sothatcompaniesthatintegratemorerecyclingsitescangainmorechanneladvantages.Inaddition,thecirculareconomyhasalsogivenrisetotheso-called"internetplus"recyclingmodel.WhetheritisB2BorB2C,internetplusrecyclingreducesthecostofrecyclinglaborandfurtherbroadenstherecyclingchannels.Thistrendisparticularlyevidentintheboomofonlinefleamarkets,suchasRERE’sAihuishouplatform.Takingacloserlookattherecyclingvaluechain,thesmallerrecyclerscollectscrapmaterialswithvaluefromenterprises,governmentandindividualdealers,producelowvalue-addedrecyclingproductsafterprimaryprocessing,andsellthemtoindustrialenterprisesthatneedrawmaterials.Profitsarederivedmainlyfromthevalueoftheendrecycledproduct,minusthecostofrawmaterialcollection,processing,logisticsandotherfactors.Mostvalue-addedinupstreamcollectionandrecyclingtechnologies1.94tCO2ecomparedtotheequivalentamountofvirginplastic.Sincedifferentplastictypesvaryintheiremissionreductionefficiency,wecombinethepercentagesdatawiththeemissionfactorofeachmajortypeofplasticproducts.Theresultsareasfollows.Exhibit11:CarbonemissionfactorforvarioustypesofwasteplasticsSource:"Progressinrecyclingofpolyethyleneandpolypropylenewasteplastics","EnvironmentalfootprintassessmentofplasticsinChina",MioTechResearchPlastictypesPercentagesEmissionfactor（tCO2e/t）27%2.9821%2.7218%2.5316%11%4.247%0.272.98+0.212.72+0.182.53+0.164.24+0.076.74+0.113.23=3.343.236.74LDPEHDPEPPPSPVCPETCombinedtotalTheGreenLeapThedemandside–sectoraluseofenergy47Technologicaladvantagescanimprovetheaddedvalueofendproducts,especiallyinthecaseofrecycledplasticsandrecycledaluminumwhererecycledmaterialshavetogothroughmechanical,chemicalandmetallurgicalprocesses.Itisforeseeablethattheindustrywillputmoreattentiontowardsresearchanddevelopment,(R&D)inrecyclingtechnologies.Inthelongrun,verticalintegrationoftheindustrycanamplifytheupstreamand/ordownstreamadvantagesofrespectiveindustryplayers,forwhichthescaleandprofitabilityareexpectedtoriseatthesametime.Inthecaseofsteelandpaperrecycling,themidstreamprimaryprocessinghasthelowestvalue-addedfromitsbasicprocesses,i.e.,shredding,washingandpacking,whiletheupstreamcontrolsthechannelandflowofwastegoods,andthedownstreamcapitalizesontechnicaladvantagestoimprovetheaddedvalueofrecycledproductsandincreaseprofitmargin.Thewastegoodsarecollectedfromeitherindustrialcommercialchannelsorthemunicipalsystem,describedintheExhibitbelow.Amongthem,autodismantlingandgarbageclassificationhavemuchpotentialforimprovement.Autodismantlingcanrecoverlargeamountsofscrapsteelandaluminum,whiledomesticgarbageclassificationcanimprovethequalityandquantityofscrapmaterialbysegregatingthemfrommunicipalwasteatthecollectionpoint.Exhibit12:ScrapmaterialcollectionchannelsinChinaSource:China'sWastePlasticPollutionPreventionStrategy,ChinaNonferrousMetalsIndustryAssociation,MiotechResearchMateriaSourceCollectionchannelsScrapsteelScrapaluminumWastepaperWasteplasticsIndustrialMunicipalSteelscrapfromsteelproductworkshopsEnd-of-lifesteelscrap,mainlyfromscrappedautomotives,ships,spentcansandfurnitureIndustrialMunicipalIndustrialMunicipalIndustrialMunicipalWasteplasticandplasticproductsgeneratedintheprocessofplasticmoldingandprocessingPlasticbottlesandbagsfrommunicipalwasteIncludingalsoagriculturallandfilmanddisposableplasticproductsfrommedicalchannelsWastepaperfrompapermillsandpaperproductprocessingplantsSpentcardboards,newspaper,packagingpaper,etc.frommunicipalwasteRecyclingwithinaluminumandaluminumproductmanufacturersConstructionaluminumscrap,automotivealuminumscrap,cans,etc.TheGreenLeapThedemandside–sectoraluseofenergy48ScrapimportandexportsituationChina's“GreenFence''policyisinfullforce,directlyaffectingtheimportandexportofrecycledgoods,bothinquantityandprices.Thepolicyfirstcameintoforcein2017withharshrestrictionsonimportingwastematerial,andthecountryorderedatotalbanonimportsofsolidwastefrom2021,whichincludeswasteplasticsandpaper,andscrapnonferrousmetalsironandsteel,etc.Onlyrecycledgoods,meaningthosebeingprimarilyprocessedandnolongercontainmaterialconsideredaswaste,areallowedtobeimported,andarerstillsubjecttostrictcustomsinspections.China'swasteimportshaveplummeted,especiallyforthepaperindustry,whichhasahighdegreeofimportdependence.Companiessourcingpaperpulphaveencountereddifficulties,andthepriceofdomesticwastepaperandvirginpulphassubsequentlyincreased.Tocopewiththemarketriskofrawmaterialsupply,therelevantdomesticenterprisesestablishedplantsinSoutheastAsia,NorthernEuropeandNorthAmerica.AnewcommercialloopofimportingpulpfromOECDcountriestoSoutheastAsiaforprocessingandexporttoChina-hasbeenestablished.Furthermore,forest-pulp-paperintegrationmaybecomethenewtrendinresponsetotheincreasinglystringentenvironmentalregulationsandincreasedimportcostsinSoutheastAsia.TakingShandongSunPaperasanexample,thecompanyestablishedamanufacturingbaseinLaoswhichintegratedforest-pulp-paperinthesameplace.RecycledaluminumandplastichavethefastestgrowingmarketChinahasalargerecyclingsystemwithlongchainsfromindividualswhowalkthestreetsandcollectfromdoortodoor,topackingstationsandsortingcentersinscattereddivisionswithinthecity.Aftersortingandpacking,materialflowstorecyclingenterprisesandtraders,andeventuallybacktothemanufacturingenterprisesdemandingrawmaterials.Exhibit13:ThedomesticrecyclingloopinanutshellSource:MioTechResearchProcessedintorecycledrawmaterialCollectionthroughvariouschannelsSortingandPackingConsumption,andbedisposedFinishedproductsTheGreenLeapThedemandside–sectoraluseofenergy49Therecyclingofsteelandpaperisrelativelymature,andtheaddedvalueofprocessingisnothigh,withlimitedpotentialforfuturerecyclingrategrowth.Theincreaseofrecyclingvolumewillbemainlylinkedtotheoveralleconomicdevelopmentandtheincreaseofpercapitaconsumptionofsteelandpaper.From2025onwards,assumingstableeconomicgrowth,weexpectsteelandpaperrecyclingtomaintainagrowthrateof3%between2025and2030and2.5%between2030and2060.Steelrecyclingwillreach780milliontonsin2060,whilepaperrecyclingwillbecloseto150milliontons.Therecyclingofaluminumandplasticbenefitsfromtechnologicaladvancesandtheexpansionofprocessingcapacity.Theperformancequalityoftheirprocessedvarietieswillbeimproved,resultingingreatervalueaddedanddrivingthegrowthofupstreamaluminumandplasticscraprecyclingratesandrecyclingvolumes.Onthebasisof7.4milliontonsofaluminumscrapand16milliontonsofplasticscraprecycledin2020,thealuminum/plasticrecyclingvolumeisexpectedtoreach11.5milliontons/25milliontonsand23milliontons/50milliontonsin2025and2030,respectively.Thereafter,therecyclingofaluminumandplasticsisexpectedtomaintaina5%compoundannualgrowthrate(CAGR)from2030to2060,reaching100milliontonsofaluminumandover200milliontonsofplasticsby2060.Exhibit14:RecyclingvolumeandCAGRpredictionsofsteel,paper,aluminumandplastic,2025-2060VarietiesRecyclingVolume（Milliontons）CompoundAnnualGrowthRateSteel20202025E2030E2060E2020-252025-302030-602603203717784.2%3.0%2.5%5560701461.8%3.0%2.5%7.4011.523.11009.2%15.0%5%1625502173384175141,2419.3%4.2%4.3%3.0%15.0%5%PaperAluminumPlasticTotal(Milliontons)Exhibit15:Recyclingvolumepredictionsofsteel,paper,aluminum,plastic(milliontons，2025-2060)Source：MioTechResearchRecyclingVolumes(Mton)010020030040050060070080090020202025E2030E2060ESteelPaperAluminumPlasticTheGreenLeapThedemandside–sectoraluseofenergy50Therecyclingofsteel,aluminum,paperandplasticwillreachacombinedmarketsizeofRMB1.4trillionin2025,withanoverallaverageannualgrowthrateof5%.Themarketsizeofaluminumandplasticrecyclingwillgrowatanaverageannualrateof9.2%and9.3%,aheadofthe4.2%ofsteeland1.8%ofpaper.By2030,thetotalrecyclingmarketsizeofthefourvarietieswillreachRMB2trillion.By2060,therecyclingmarketsizeforbothaluminumandplasticswillexceedtheRMB1trillionmark,reaching1.7trillionand1.3trillion,respectively,whiletheoverallmarketsizeforsteel,aluminum,paperandplasticswillreachRMB5.7trillion.Exhibit16:Marketsizeforecasttableforsteel,paper,aluminumandplastic,2025-2060Note:TheunitpriceofeachmaterialiscalculatedatRMB3000/tonforsteel,RMB2400/tonforpaper,RMB17000/tonforaluminumandRMB6000/tonforplasticrespectively.MarketSize(RMBbn)20202025E2030E2060ETotalSteel7809601,1132,3341321441673501261963931,699961503021,3041,1341,4501,9755,688PaperAluminumPlasticExhibit17:Marketsizeforecast(inRMBbn)forsteel,paper,aluminumandplastic,2025-2060Source:MioTechResearchMarketSize(RMBBillion)SteelPaperAluminumPlastic05001,0001,5002,0002,50020202025E2030E2060ETheGreenLeapThedemandside–sectoraluseofenergyEvidencefromMioTech’sdata:theincreasingcircularityCorporateshavesteppeduptheirresponsiblewastemanagementefforts.Basedon2020-21datafromallmainlandA-shareandHongKong-listedChinesefirms,wefounda46%YoYincreaseinthesecompanies’totalrecycledwastevolume,whiletheaveragewasterecyclingratealsoimprovedsignificantlyfrom60.5%in2020to69.2%in2021.Theincreasedquantitycomesfromahighervolumeofrecyclablematerials,includingscrapsteelfromthesteelmakingprocess,end-of-lifewasteplasticsaswellaspaperforpackagingandotheruses,amongotherindustrialandcommercialwaste.Exhibit18:RecyclingtrendsofallmainlandA-shareandHongKonglistedChinesefirmsdisclosingthesetsofwasterecyclingdatainbothyearsof2020and202110,000,000020,000,00030,000,00040,000,00050,000,00060,000,000100203040506070TotalRecycledWaste(tons)WasteRecyclingRate(%)2020202160.569.2Inaddition,manufacturingcompaniesareputtingmoreemphasisonpromotingthesustainableuseofrawmaterialsandtherecyclingofusedproductsaspartofthecirculareconomy.In2020,outofall(2,675)industrialsectorcompaniescoveredbyMioTech(MICS),onlysixfirmsreportedprogressonpromotingthesustainableuseofrawmaterialsandnonedisclosedproductrecyclinginitiatives.In2021,bycontrast,70companiessharedaboutactivitiestargetedatthesustainableuseofrawmaterialsand37companiesreportedlyestablishedproductrecyclinginitiatives.Heavyindustriesshowedthehighestreportingrates,wheretheyconsumethemoststeel,aluminium,paper,andplasticproducts.51TheGreenLeapThedemandside–sectoraluseofenergy52Waste-to-energytosupplementdecarbonizedcircularityAsthefinaldestinationofwastedisposal,waste-to-energyalsocontributestocarbonemissionreduction.Asanalternativetolandfilldisposal,wasteincinerationavoidsthemethanegeneratedbylandfillsandreducesgreenhousegasemissionsbyreplacingfossilfuelswithelectricitygeneratedbyincineration.Accordingtoourcalculation,incinerationof1tonofgarbagecanactuallyachieveGHGemissionreductionof0.54tCO2e.Exhibit20:Waste-to-energycarbonemissionreductionmeasurementSource:MioTechResearchEmissionreductionbyavoidingwastefromlandfillEmissionreductionsfromelectricitygenerationEmissionreductionstotalWith50cubicmetersofmethanegeneratedpertonofwaste,anoxidationratefactorof0.5,andanaverageutilizationrateof20%oflandfillgas,20cubicmetersofmethanewillbeleakedpertonofwaste.Thegreenhousegaseffectofmethaneis21timesthatofcarbondioxide,yieldingacarbonemissionreductionof0.3tCO2epertonofwastelandfillavoided.Waste-to-energypowergenerationassumes300kWh/t.BasedontheEastChinaPowerGridemissionfactorof0.7921tCO2/MWhpublishedbytheNDRC,waste-to-energypowergenerationcanachievecarbonemissionreductionofabout0.24tCO2eperton.0.54tCO2epertonSource:MioTechResearchExhibit19:Companiesreportinginitiativessupportingcircularityin2021,bysectorElectricalEquipmentMechnicalEquipmentConstructionMaterialTransportationNonferrousMetalChemicalLightManufucturingEnvironmentalProtectionOthersectors80706050403020100CompaniesReportingProductRecyclingInitiativesin2021CompaniesReportingSustainableUseofRawMaterialin2021TheGreenLeapThedemandside–sectoraluseofenergy53Thecertifiedcarbonemissionreduction(CCER)marketisexpectedtorestartin2022,andCCERtradingcanbringadditionalrevenuetowaste-to-energycompaniesandimprovetheircashflow.Thecertifiedemissionreductionofawaste-to-energyprojectisabout0.5KgperkWh.AssumingthecarbonquotatradingpriceofRMB30/ton,CCERtradingcanbringadditionalrevenueofRMB4.2/ton,whichisabout5%ofthetippingfee.Thewaste-to-energyindustryalsofacessomechallenges.Firstandforemostisthegradualsaturationofthemarket.Thenewinstallationsinthedomesticwaste-to-energymarketin2021hasdroppedsignificantlyforthesecondyearinarow:atotalof57,500tons/daywith69newwaste-to-energyprojectswereawardedin2021.Comparedto127,000tons/dayin2019and74,300tons/dayin2020,thenumberhasdecreasedfortwoconsecutiveyearsby70,000tons/day(54.72%)and16,800tons/day(22.61%).Furtherimplementationofgarbageclassificationwillalsoleadtoadecreaseinthevolumeofadmittedwaste,affectingtippingfeesandpowergenerationrevenue.Onanothernote,statesubsidiesforwaste-to-energyhavebeenadjusted,whichaffectsthefuturecashflowofexistingwaste-to-energyprojects.Underthecurrentincentiveprogram,waste-to-energyprojectsstopreceivingstatesubsidyafterabout17yearsofoperation,andfortheirlast13yearsofprojectlifecyclethenetprofitwilldropby14.3%onaverage.Takinganexampleofamediumsizedwaste-to-energyprojectwith1,000tons/daycapacity,thenetprofitisRMB21.7million(projectlifecycleyears9-17,incometaxrate25%)andRMB18.6millionafterwards(projectlifecycleyears18-30,assumingcompleteabolitionofstatesubsidy,incometaxrate25%).TheGreenLeapThedemandside–sectoraluseofenergy54CaseCompany:ShanghaiChengtouCorporation,apioneerinurbanenvironmentprotectionShanghaiChengtouCorporation,establishedinJuly1992,isalargeinvestmentgroupcompanyauthorizedbyShanghaiMunicipalPeople'sGovernmenttoengageinurbaninfrastructureinvestment,constructionandoperation.OneofthemainbusinessfocusesofShanghaiChengtouCorporationisenvironmentalservices.ItssubsidiaryShanghaiEnvironmentGroupCo.Ltd.andShanghaiLaogangSolidWasteComprehensiveDevelopmentCo.,Ltd.aremainlyresponsibleforthetransportationanddisposalofmunicipalwasteandothersolidwaste,aswellastheinvestment,developmentandoperationofenvironmentalprotectionprojects.ShanghaiEnvironmentGroupCo.Ltd.(601200.SH)isitsflagshipsolidwastetreatmentcompany.ShanghaiChengtouCorporationhasawaste-to-energycapacityof28,200tons/dayinoperation,andover4,500tons/dayofprojectsunderconstructionandinthepipeline.Thecompanyhasalsodiversifieditsoperation,withdeepinvolvementintheconstructionofgarbageclassificationterminalcapacityinShanghai,andtwoconstructionwasteprojectsandtwofoodwasteprojectsinhand.In2020,thecompanyreachedRMB7.1billionyuanofrevenue,withaCAGRof23%from2016to2021.ThecompanyalsoachievednetprofitofRMB687million,ROEof8.2%,grossprofitmarginof23.66%.ChongqingShunboAluminum(002996.SZ)Thecompanyismainlyengagedintherecyclingofaluminumandaluminumproducts,includingtheproductionandsalesofrecycledaluminumalloyingots.Thecompany’sproductlineincludesvariousstandardandnon-standardgradesofrecycledaluminumalloyingotsfordomesticautomobileandmotorcycleindustrymanufacturers,generalmachineryfoundryenterprisesandaluminumproductcompanies.NineDragonsPaper(02689.HK)Thecompanyisthesecondlargestpapermanufacturinggroupintheworldintermsofproductioncapacity.Thecompanyengagedintheproductionandsaleofdiversifiedpackagingboardproducts,includingcardboard(whitekraftlinerboardandcoatedkraftlinerboard),coatedgray-backedwhiteboard,specialtypaper,high-strengthcorrugatedboard,corrugatedcartonandpulp,andhasestablishedanumberofpaperpackagingcompaniesdownstreamtoprovideone-stoppackagingservicestocustomers.JiangsuHuahongTechnology(002645.SZ)Thecompany'sbusinessinvolvesscrapsteelprocessingandtrading,comprehensiveutilizationofrareearthscrap,dismantlingandrecyclingofend-of-lifevehicles,aswellastheresearch,development,productionandsalesofelevatorparts.Startingwithascrapsteelprocessingequipmentbusiness(thecompany'smarketshareofscrapsteelequipmentin2019wasnearly40%),thecompanygraduallyintegratedautodismantlingandrareearthscrapprocessingbusinessesthroughacquisition.CompanyimplicationsExclusivedominationofShanghaimarketandestablishmentofbarriersofentry.Thecompany'sdomesticwastedisposalcapacityaccountsforabout80%ofthetotalcapacityinShanghai.Asthelocalgovernmentstendtogiveprioritytocontinuecooperationaftertheprojectexpires,thecompanyisexpectedtooccupyastablemonopolypositioninthelongterm.CCERwillincreaseprofits.Underthepremisethatwaste-to-energypowergenerationprojectscanapplyforCCER,forexample,basedontheannualgenerationof2.19TWh,thecompanycanobtainanadditionalrevenueofRMB37.6millionthroughCCERtransactions,accountingfor6%ofthecompany'snetprofitinthesameperiod.Outlook1Outlook2TheGreenLeapThedemandside–sectoraluseofenergy55ShandongSunPaper(002078.SZ)Foundedin1982,ShandongSunHoldingsGroupisaleadingcross-nationalpapermakinggroupintegratingtimberlandpulpingandpapermaking.Thecompanyhassixmajorproductlines,comprisingpremiumcoatedpackagingpaperboard,high-classartpaper,high-classculturalandofficepaper,specialtyfiberdissolvingpulp,householdpaper,andindustrialpaper.Todate,ShandongSunPaperhasRMB42billiontotalassetsandmorethan14,000employees.ShandongIntco(688087.SH)ShandongIntcoRecyclingisahigh-techmanufacturerofrecycledproducts.Utilizingrecycledresources,ithascreatedafullsupplychainwithrecirculatedplastics.Thecompanyhastheannualcapacitytorecycle150,000tonsofEPSfoam,and50,000tonsofPETbottlesandfood-gradePETplastics.ATRenew(RERE)HeadquarteredinShanghai,ATRenewInc.operatesaleadingtechnology-drivenpre-ownedconsumerelectronicstransactionsandservicesplatforminChinaunderthebrandATRenew,whichstandsfor“AllThingsRenew.”Sinceitsinceptionin2011,ATRenewfacilitatesrecyclingandtrade-inservicesforelectronicgoods,anddistributesthedevicestoprolongtheirlifecycle.ATRenew’sopenplatformintegratesC2B,B2B,andB2Ccapabilitiestoempoweritsonlineandofflineservices.ThecompanyisaleadingplayerinChina’spre-ownedconsumerelectronicsindustry,throughitsend-to-endcoverageoftheentirevaluechainanditsproprietaryinspection,grading,andpricingtechnologies.Asmentionedearlier,mostGHGemissionsfromtheindustrialsectorcomefrommanufacturing,includingemissionsfromtheconsumptionofrawmaterials,theuseoffossilfuelsasheatsources,andtheindirectemissionofelectricityconsumption.Thefirsttwosourcesofcarbonemissionsaremoredifficulttoabate.First,carbonemissionsfromrawmaterialsconsumedintheprocesscannotbedecarbonizeddirectly,ratheronlybereducedbyimprovingtheprocess.Second,fossilfuelsaremostlyusedinindustrialproductiontogeneratehigh-temperaturewasteheat(processtemperaturestypicallyreach600°Ctoover1,600°C)forprocessessuchassmeltingandhigh-temperatureheattreatment.Reducingtheseemissionsbyswitchingtozero-carbonelectricitywouldbedifficultbecauseitwouldrequiremajorchangesintheprocessflowandequipment.Butasatransitionandemissionpeaking,energyefficiencycouldbeimprovedbymeansofwasteheatrecovery.Thedecarbonizationpathwayforreducingindirectemissionsfromtheuseofelectricityismoreexplicit.Althoughprocessesvaryfromindustrytoindustry,theequipmentthatconsumeselectricityisrelativelycommonandcangenerallybedividedintohighvoltageequipment(above1000V)andlowvoltageequipment(below1000V).High-voltageequipmentincludescompressors,rollingmills,crushers,cuttingmachines,transportmachineryandotherlargerelectricalequipmentusedinmetallurgyandsteel,mining,machineryandpetrochemicalindustries.Ontheotherhand,low-voltageequipmentsuchaspumps,fans,compressors,arewidelyusedwithinalmostallindustries.Theelectricalsystemofatypicalmanufacturingplantincludeshigh-voltagepower,low-voltagepower,powerdistributionandelectricalcontrolmodules.Thecorecomponentsofthesefourmodulesaremotors,transformersandinverters.Improvingtheenergyefficiencyofthesecoredevicesiskeytoreducingindirectemissionsfromtheindustrialuseofelectricity.Inthefollowing,wewillfocusonanalyzingtheavailabilityofthesethreecoredevicesforenergyefficiencyimprovementandtheirfuturetrends.2.AdvancedelectricalequipmentdrivesenergyefficiencyimprovementTheGreenLeapThedemandside–sectoraluseofenergy56ElectricmotorsElectricmotorsaretheequipmentthatconvertselectricalenergyintomechanicalenergyandthekeydriverofalmostallindustrialelectricalequipment.Itisestimatedthatthepowerconsumptionofindustrialmotorsaccountsfor70%ofthetotalelectricityconsumptioninthewholeindustrialsector.Everyonepercentagepointincreaseinmotorenergyefficiencycansave26TWhofelectricityperyear.Phasingoutlowenergy-efficiencymotorsandreplacingthemwithhighenergy-efficientonescanmaintainthesamelevelofoutputwhilesaving5-10%ofenergyuse.InNovember2021,theStateMinistryofIndustryandInformationTechnologyissuedtheMotorEnergyEfficiencyImprovementPlan(2021-2023).Theplanordersthephasingoutofinefficientmotorsthatdonotmeettherequirementsofthecurrentnationalenergyefficiencystandards,andproposesthattheannualoutputofenergy-efficientmotorsshouldreach170GW,andtheproportionofenergy-efficientmotorsinserviceshouldexceed20%by2023.Thiscouldresultinannualsavingof49TWh,equivalentto15mtceandanemissionreductionof28milliontCO2e.Themarketshareofenergy-efficientmotorsiscurrentlylessthan10%inChina,andtheplansetsalevelofover20%tobemetby2023.Thefuturedemandforenergy-efficientmotorscomesmainlyfromtheincrementaldemandfornewmotorsandthereplacementofoldmotorswithnewones.Industrialenterprisesalsoneedtoreducetheircarbonemissionexposurethroughenergy-efficientmotorreplacement.Withthecarbontradingmarketcomingintoeffectforheavyindustriesby2025,theseindustrialenterpriseshavetofindawaytopreparefortherisingcostofcarbon.Thereplacementofenergy-efficientmotorsisthemostdirectandcost-effectivemeansofsavingenergyintheirelectrifiedprocesseswhichdoesnotrequiremodificationtootherprocessequipment.Frominformationpubliclydisclosedbysomemotormanufacturers,themarketgrowthrateofenergy-efficientmotorsin2021hasrisenfromastable3-4%inpreviousyearstoabout20%.MarketSizeTheoverallmarketsizeofindustrialenergy-efficientmotorsisaroundRMB100billionperyear,ofwhich70%isnewdemandand30%isreplacementdemand.ThevalueofmotorscurrentlyinoperationisaboutRMB2trillion.Thenewplanwillstimulatethereplacementdemandoflow-efficientmotors.Inordertoreachthe20%ofenergy-efficientmotorstargetin2023,weestimatethereplacementrateofstockmotorswillreach3%/5%/7%in2021-2023.Accordingtothisprojection,theoverallsizeoftheenergy-efficientmotormarketcanexceedRMB210billionin2023.TheGreenLeapThedemandside–sectoraluseofenergy57Largehigh-voltageinstallationshavebigemissionexposure.Significantpotentialforreplacementdemandispresentinthepetrochemical,coalchemicalandmetallurgicalindustries.Forlow-voltageelectronicssuchasfans,sumppumps,compressors,thegrowthopportunityforenergy-efficientmotorsislinkedtogeneralindustries,infrastructure,andrealestate,etc.Inaddition,permanentmagnetmotors,ahighercosttechnologywithsuperiorenergyefficiency,isexpectedtogaintractioninthehigh-endmarket,suchaselectricvehicles,homeappliances,intelligentmanufacturingandwindpower.Themotorindustryisexpectedtoincreaseinmarketconcentrationwithrisingbarriersinenergy-efficienttechnologies.Exhibit21:Energy-efficientmotormarketsizeforecast,2020-2023Source:MioTechResearch2,500MarketSize(RMBBillion)20202021ENewdemand(RMBbillion)Replacementdemand(RMBbillion)2022E2023E1,5001,00050002,000WolongElectric(600580.SH)Thecompanyismainlyengagedintheresearchanddevelopment,productionandsalesofelectricmotorandelectriccontrolproducts.Thecompanyhasalargenumberofindependentintellectualpropertyrightsonhouseholdmotorsandcontroltechnology,high-powerdrivecontroltechnology,high-efficiencymotorsandpermanentmagnetmotors.Leadinginthedomesticandglobalmarket,thecompanyisjoinedbypeerslikeABBandSiemens.AccordingtoIHSMarkitdata,in2020,thecompany'sshareoftheglobalhigh-voltagemotormarketwasabout11%,rankedsecondintheworld;theshareofthegloballow-voltagemotormarketisabout6.5%,rankedfourthintheworld.CompanyimplicationsTheGreenLeapThedemandside–sectoraluseofenergy58TransformerThetransformerisadevicethatchangestheACvoltagewiththeprincipleofelectromagneticinduction.Transmissiontodistributionaswellasdistributiontoend-of-userequiresgradientuseoftransformersforreducingthevoltage.OnChina'sACgridsystem,thetransmissionlinevoltageisatleast35kV,andtheultra-highvoltagecanevenexceed1000kV,whilethedistributionlinevoltageis10kV,andtheend-usevoltageis220V(residential)or380V(industrialandcommercial).Andtherefore,transformersarethebasicequipmentfortransmissionanddistribution,andarewidelyusedinthedemandside,e.g.,industrial,agricultural,transportation,andresidentialsectors.ItisestimatedthatChinahasabout17milliontransformerscurrentlyoperating.Thetransformerlossesaccountforabout40%ofpowerlossesonthetransmissionanddistributionlines,orabout2.6%oftotalpowergeneration,whichisofgreatenergy-savingsignificance.Mandatorypolicieshavebeenlaunchedtopromotetheapplicationofenergy-efficienttransformersandthephasingoutoflow-efficiencytransformers.InJune,2021,theEnergyEfficiencyLimitingValuesandEnergyEfficiencyGradesofPowerTransformers(GB20052-2020)wasofficiallyimplemented.Thismandatorynationalstandardputsforwardhigherrequirementsfortransformerenergyefficiency,inlinewithinternationalstandards.Withthenewstandardcomingintoforce,theMinistryofIndustryandInformationTechnologyissuedtheTransformerEnergyEfficiencyImprovementPlan(2021-2023),whichemphasizesthefollowing:1.Increasingtheuseofenergy-efficienttransformers.SinceJune2021,allnewtransformersshallmeettherequirementsofnationalenergyefficiencystandards.Energy-efficienttransformersusedinindustrial,communications,construction,transportationsectorsareparticularlyencouraged.2.Phasingoutoflow-efficiencytransformers.Specialinspectionswillbeorganizedtooverseekeyindustriessuchassteelmaking,petrochemical,chemical,non-ferrousmetal,andbuildingmaterials.Theenterpriseswillbeaskedtogetridoftransformersthatdonotmeetthenewnationalstandard.3.Upgradingtransformerefficiencyinpowergridenterprises.Powergridenterprisesareaskedtodevelopandimplementlow-efficiencytransformerphase-outplans.By2023,transformersthatdonotmeetthenewnationalenergystandardsshouldbereplaced.StartingfromJune2021,allnewprocurementshouldbeenergy-efficienttransformers.1.Replacementoflow-efficiencytransformers–400,000-700,000unitsperyearThereareabout17milliontransformersinoperationinChina,ofwhich65%,ormorethan10million,areGrade3energy-efficienttransformersandbelow.Low-efficiencytransformers,i.e.,transformersbelowGrade3,areestimatedtobeabout4-7millionunits.Ifallofthemarereplacedinthenext10years,theannualdemandwillbeabout400-700thousandunits.BasedontheaveragepriceofRMB20,000/unit,totalreplacementdemandisaboutRMB11billionperyear.2.Newinvestmentincrementaldemand-400,000-600,000unitsperyearFromthesecondhalfof2021,allnewlyprocuredtransformersforStateGridandChinaSouthernPowerGridareenergy-efficientones.Gridcompanies’transformerdemandisestimatedtobe200,000-300,000units,combinedwithasimilaramountofdemandfromcommercialandindustrialsectors,theannualnewinvestmentdemandisexpectedtobeabout400,000-600,000unitsworthRMB10billion.MarketSizeOverthenextfewyears,themarketsizeforenergy-efficienttransformersinChinacouldreachRMB20billionperyear,withhighcertaintyofdemandgrowthfromnewinvestmentandreplacementofexistinglow-efficiencytransformers.TheGreenLeapThedemandside–sectoraluseofenergy59TBEA(600089.SH)TBEACo.Ltd.mainlyoperatesintheelectricpowertransmissionandtransformation,newenergyandEnergysegments.ElectricpowertransmissionandTransformationismainlyengagedinR&D,manufacturinganddistributionoftransformers,wiresandcablesandotherelectricpowertransmissionandtransformationproducts.ItsneweEnergysegmentmainlyinvolvesintheproductionandsalesofsiliconandinverters,aswellassolutionsforthedesign,construction,debugging,operationandmaintenanceofphotovoltaicelectricandwindpowerplants.Thecompanyisthedomesticleaderinthetransformerproductmarket.In2021thecompany’stransformersalesexceededRMB10bnandisexpectedtomaintainhighgrowth.StateGridYingda(600517.SH)StateGridYingdaCoLtd,formerlyShanghaiZhixinElectricCoLtd,isaChina-basedcompanyprincipallyengagedinthemanufacturingandsalesoftransformers.ThecompanyisasubsidiaryoftheStateGridCorporation.Thecompany'smainproductsincludeamorphousalloydistributiontransformers,amorphousalloymodulartransformers,siliconsteeltransformers,amorphousalloyironcoresandintegratedtransformersubstations,amongothers.Thecompanyisalsoinvolvedintheprovisionofenergysavingandenvironmentalprotectionequipmentandservices,aswellastheoperationalandmaintenanceservicesrelatedtosmartpowergridsthroughitssubsidiaries.Thecompanyisalsoengagedintrust,securitiesandfuturesbusinesses.CompanyimplicationsVariable-frequencydrive(VFD)Althoughthereplacementofmotorscanimproveenergyefficiency,thecombinationofhigh-efficiencymotorsandvariable-frequencydrive(VFD)canachievehigherenergysavings.TheVFDservestoregulatethespeedandtorqueofthemotortomatchthesystemloadrequirements,andultimatelytooptimizeoperationbycontrollingthemotor.WiththerightVFD,themotorwillonlyrunatthespeedrequiredbytheload,resultinginsignificantpowersavings.WhenVFDandmotorsareusedincombination,energyconsumptioncantypicallybereducedbyatleast25%,accordingtoABB’sestimate.EnergysavingsfromVFDaremainlyfoundintheapplicationoffansandpumps.Inordertoensurethereliabilityofproduction,productionmachinesaredesignedwithpowerdriveswithacertainextraamountofmargin.Whenthemotorrunsbelowfullload,theunutilizedexcessivetorqueincreaseselectricityconsumption,resultinginawasteofelectricalenergy.Whenvariablefrequencycontrolisinstalled,VFDwillrespondtothereductionintheloaddemandinreal-time,andreducethespeedofthepumporfanaccordingly.TheearliestVFDweredevelopedintheearly20thcenturyandweredesignedbasedonmechanicalstructures.Withthedevelopmentofsolid-stateelectronicsinrecentdecades,VFDshavebecomeincreasinglysophisticatedandinexpensive.Despitethisremarkableprogress,theacceptanceofVFDhasnotbeenasfastasdesired.Itisestimatedthatabout23%oftheworld'sindustrialmotorsarecurrentlyequippedwithVFDs.Thefigureisexpectedtogrowto26%inthenextfiveyears,butiftherateofpenetrationcanbeaccelerated,itwillhelpsavealotofextraenergy.AccordingtotheIEA,about50%ofindustrialmotorscansavemoreenergywhenequippedwithVFD.Motorsandinvertersareeasytoinstallanddonotrequireanyadditionalmodificationstoexistingindustrialprocesses,makingthemanattractiveinvestmentpropositionfortheindustrialcompanies.Anothermajorconsiderationforthemisthepaybackcycle,asthepotentialreturnonenergyefficiencyinvestmentsaredesiredtomatchthatoninvestmentinotherareas.ThepaybackcycleofVFDdependsheavilyonenergyprices.Periodsofrisingenergypriceswillmakeinvestmentinenergy-efficientequipmentmoreattractive.TheGreenLeapThedemandside–sectoraluseofenergy60LeveragingIndustrialIoTforadvancedindustrialenergymanagementsystemTheindustrialInternetofThings(IoT)isanothertechnologyontherisewhichbringssignificantimplicationsforindustrialenergyefficiencyimprovement.Traditionalindustrialenergymanagementfocusesontheefficientprovisionanduseofprocessenergyneeds,suchasheating,cooling,compressedair,andelectricity.TheIoThasawealthofnewdatastreamstosupportenergymanagementmeasures.Thetechnologystemsfromthedigitalizationandinterconnectivityofindustrialequipment.Inanutshell,industrialIoTofferstheaccessibilitytotheoperationaldatathroughconnectedsensors.Inacomplexindustrialfacility,thosedatacaninclude1)operationalmonitoringdata,suchasloadcurveofthemotor,heatmeter,flowmeter,andproductionlineoutput,and2)energyconsumptiondatafromindividualequipmentinproductionlines,powersystem,andauxiliarysystemssuchasheating,ventilation,andairconditioning(HVAC)andfirefighting.Thedataprovidedbythesensorscanbeintegratedandanalyzedtoprovidethebasisforreal-timeregulationoftheequipmentbyanindustrialcontrolsystem(ICS).Thisallowstwowaysofenergymanagement:AtypicalICShasthreelayersofcomponents:1.Openloop,wheretheoptimalsetpointsareindicatedtotheoperatorstomanuallysettheoptimizationvariables;2.Orclosedloop,wherethesetpointsaresentdirectlytoeachoptimizablevariable.1.Thecontrollayer,whichservesasthebrainofthesystem.Thecontrollayerisahuman-machineinterfaceinwhichtheoperatorreliesonaprogrammablelogiccontroller(PLC)anddecentralizedcontrolsystem(DCS)tovisualizeoperationaldataandsendprocesscontrolinstructions.2.Thedriverlayer,whichservesastheheartofthesystem.VFDisthemaindeviceatthislayer.Itreceivesinstructionalsignalsfromthecontrollayerandalterspowerinputfrequencyand/orvoltagetothemotoraccordingly.3.Theexecutionlayer,whichservesasthearmsandlegsofthesystem.Thesearethemotor-drivenequipmentperformingasthecontrollayerintended.Theseimplementationscantypicallyachieveenergy-consumptionreductionsfrom3%to8%fortheopen-loopmodel,and6%to15%forclosed-loopapplications.TheGreenLeapThedemandside–sectoraluseofenergy61TheICSindustryisamulti-billion-dollarbusiness.BigplayerslikeSiemens,Schneider,andABBarecomprehensiveautomationandprocessautomationsolutionproviders.Thebusinessscalesofthesecompaniesareover$5billioninICS.Panasonic,OmronandmainlyotherJapanesecompaniesprovidespecialtyfactoryautomation.Theirautomationbusinessscalesarearound$1billionto$5billion.Overall,China’sdomesticmarketsizeforICSiswelloverRMB200billion.Thecombinationofindustrialcontrolwithdigitalizationofequipmentmanagement,processmanagementandenergyefficiencyimprovementcanpresentatotalsolutionforenergymanagementintheindustrialsector.Industrialenterpriseswithlargecarbonemissionexposurehaveacontinuousdemandinthecomingyears.However,thesuccessfulimplementationofsuchtotalsolutionsdependsontheunderstandingoftheindustrialprocessflowandoperationalcharacteristicsandthefullmatchingofkeyequipmentsuchasVFD.Enterpriseswithtechnicalknow-howforindustrialapplicationsandkeyequipmentmanufacturingcapabilitieswillhavesignificantcompetitiveadvantagesandgainsolidgrowthprospects.Exhibit22:ThreelayersofatypicalindustrialcontrolsystemSource:Publicinformation,MioTechResearchPLCHumanMachineInterfaceAnalogtoDigitalConverterDigitaltoAnalogConvertorVFDMotorSensorControllayerDriverlayerExecutionlayerTheGreenLeapThedemandside–sectoraluseofenergy62HiconicsEco-energyTechnology(300048.SZ)HiconicsEco-energyTechnologyCoLtdformerlyHiconicsDriveTechnologyCoLtdisaChina-basedcompanyprincipallyengagedinR&D,manufacturingandsalesofhigh,mediumandlowvoltageVFDs.Thecompany'sbusinesscoversindustrialautomation,powerqualitymanagement,energysavingandenvironmentalprotection,cleanenergyandotherfields.InApril2020,MideaGrouptookcontrolofthecompany,andintegratedthecompanyintoMideaGroup'sindustrialtechnologybusinessgroup.Thecompanyistheleadinginthedomestichigh-voltageVFDmarket,rankingfirstinmarketshare,withashareofmorethan10%.ShenzhenInovanceTechnology(300124.SZ)ShenzhenInovanceTechnologyCoLtdisaChina-basedcompanyprincipallyengagedinR&D,manufactureanddistributionofindustrialautomaticcontrolproductsandnewenergyrelatedproducts.ItsmainproductsincludeVFD,servosystems,controlsystems,industrialvisualsystems,sensors,motorcontrollers,auxiliarypowersystems,tractionconverters,auxiliaryconverters,highvoltageboxes,tractionmotorsandtraincontrolandmanagementsSystems(TCMSs),amongothers.Thecompanydistributesitsproductsinthedomesticmarketandtooverseasmarkets.After17yearsofdevelopment,ithasbecomealeadingindustrialautomationenterpriseinChina.In2021,thecompany'stotalrevenuereachedRMB18billion.CompanyImplicationsWasteheatresourcesarewidelyavailableintheindustrialsector.Theseresourcesthatcannotbedirectlyreusedintheproductionprocessarerecoverableintheformofthermalenergy.Wasteheatresourcesarecommonlyfoundinvariousindustries,includingmetallurgical,powergeneration,chemical,andfoodindustries..Wasteheatresourceshavequitealotofcommonalities,suchaswidetemperaturerange,complexworkingmediums(oftencorrosiveanddusty),andscatteredthroughouttheproductionprocess.Efficientharvestingandutilizationofthesewasteheatcanoftenbefoundchallengingwithexistingtechnologies.Thetemperatureofindustrialwasteheatisanimportantparametertomeasureitsquality.Thetemperaturehasadecisiveroleinthewaywasteheatisrecoveredandutilized.Industrialwasteheatisdividedintothreecategories,accordingtoitstemperature:3.WasteheatrecoverytechnologiesgaintractionExhibit23:CategoriesofindustrialwasteheatSource:ReviewofIndustrialWasteHeatRecoveryTechnologyinChina,MioTechResearchHightemperaturewasteheatMediumtemperatureresidualheatLowtemperaturewasteheatMostoftheindustrialwasteheatwithtemperaturesabove500°Ccomesfromindustrialfurnaces,suchassmeltingfurnaces,heatingfurnaces,cementkilns,etc.Industrialwasteheatattemperaturesbetween200and500°C,mainlycomesfromgasdischargedfromthehigh-temperaturemediuminvariousthermalpoweredplantsandfurnacesafterheattransfer.Industrialwasteheatattemperaturesbelow200°Cmainlycomesfromthreesources:a.Thelowtemperaturedirectwasteheatemissionsfromsomeequipment;b.Thehighandmediumtemperaturewasteheatthathasbeenprimarilyrecovered;c.Thewasteheatfromthecoolingagent,between25°Cand90°C.TheGreenLeapThedemandside–sectoraluseofenergy63Atpresent,China'senergyutilizationrateisonlyatabout33%,whichis10%lowerthanthatofdevelopedcountries,andatleast50%ofindustrialenergyconsumptionisdirectlydiscardedaswasteheatinvariousforms.Fromanotherperspective,wasteheatresourcesareabundantinChina'sindustrialsector.Widelypresentintheproductionprocessesofvariousindustrialsectors,thesewasteheataccountforabout17%to67%oftotalfuelconsumption,ofwhichtherecoverableportioncanbeashighas60%.Thereisalotofroomforimprovementintheutilizationrateofwasteheat.OrganicRankineCycleandlithiumbromidechillersgathermomentumHightemperaturewasteheatrecoveryisawell-recognizedtechnology,withagoodeconomyofheatrecoveryforpowergeneration.Hightemperaturewasteisgenerallyrecoveredbywasteheatboilertechnology.Anothermaturedtechnologyexampleisthetoppressurerecoveryturbine(TRT)generationsystem.Thecentralgovernmentmandatedrestrictivepoliciesonenergyconservationandemissionreductionovertheyears,andthesetechnologieshavebeenwidelyadoptedbyindustrialcompaniestocopewiththestringenttargetrequirements.Ontheotherhand,wasteheatrecoverytechnologyformediumandlowtemperaturewasteheatstillhashugemarketpotential.Mediumandlowtemperaturewasteheatmakesupthebiggerproportionoftotalwasteheatenergy,forexampleinthepetrochemicalindustryupto80%oftotalwasteheatresourcesaremediumandlowtemperature.However,harvestingthistypeofwasteheathasbeenlessefficientduetotechnologicallimitationsandlowergradeofthewasteheat,makingtherecoveryprocesseconomicallyunattractive.OrganicRankineCycle(ORC)technologyisontheriseforharvestingspecificallymediumandlowtemperaturewasteheatandgeneratingelectricitythereafter.ScrewexpansionpowergenerationsystemhasbeendevelopedbasedonORCtechnology.Intheprocessdepictedbelow,industrialwasteheatispassedthroughaheatexchangerthatheatsaprocessfluidwithalowerboilingpointthanwaterintosteam,whichthenentersaturbinetodriveelectricitygeneration.TheGreenLeapThedemandside–sectoraluseofenergy64ORCsystemshavebeensuccessfullycommercialized,andproventobeefficientandeconomicalforrecoveringindustrialwasteheat.AnumberofORCdesignandmanufacturingmanufacturershaveemerged,suchasOrmatintheUSA,andTurbodenofItaly.BignamesinmachinerymanufacturingbusinesssuchasGEandMitsubishihavealsosetupnewbusinesslinesforORCgenerators.Besidesindustrialwasteheat,theORCsystemisalsosuitableforotherlow-gradeenergysources,suchasgeothermal,solarandbiomass.Forlowertemperaturewasteheatresources,thelithiumbromide(LiBr)absorptionchilleristhenichesolution,whichcangenerallyutilizelow-temperatureheatsourcesintherangeof80-250℃.Intheoilandgas,chemical,metallurgicalandcokingindustries,therearelargeamountsofseparationwater,processedwastewaterandlow-pressurewastesteam.Atthesametime,theseindustriesneedalargeamountofheatsourceintheproductionprocess.TheLiBrabsorptionchillercanextracttheheatfromthelowtemperaturewasteheatandgeneratehighergradeheatingorcoolingsuitableforproductionuse,savingfuelconsumptionintheprocess.Exhibit24:ThebasicprincipleofanOrganicRankineCycleUnitSource：EnergyEducation,MioTechResearchWorkingofORCUnitHeatedPressurizedVapourHighpressureliquidLowpressureliquidLowpressureVapourExpanderEvaporatorCondenserHeatSourceCoolingWaterPumpElectricalEnergyTheGreenLeapThedemandside–sectoraluseofenergy65Inheavyindustries,weestimatemediumandlowtemperaturewasteheatsuitableforORCgeneratorrecoverytotals39.45mtceinChina.Basedonrecoveryefficiencyof10%,therecoverablewasteheatresourcesamountedto3.945mtce.Assumingannualaverageoperationalhourstobe7,000hours,therecoveryofthisamountofwasteheatrequiresaninstalledcapacityof4.58GWofwasteheatpowergeneration.Accordingtotheaboveestimates,withthecurrentcostofaboutRMB14,000perkilowattofORCgenerator,thepotentialmarketsizecanreachRMB64billionforheavyindustriesdemand.Inaddition,finechemical,buildingmaterials,oilandgasindustriesalsohavealargeamountoflow-temperaturewasteheatresources.Aroughestimateshowsthatthepotentialdemandformediumandlow-temperaturewasteheatrecoveryintheindustrialsectorcanreachRMB150bn.Exhibit25:TheworkingprincipleofaLiBrabsorptionchillerSource:ACHRNews,MioTechResearchWasteHeatformProcessorLow-PressureRefrigerantVaportoCondenserThrottleValveHighPressureLowPressureRefrigerantVaportoCondenserRefrigerantVaporfromEvaporatorElectric/Engine-DrivenCompressorPumpRefrigerantVaporfromEvaporatorRejectedHeatGeneratorAbsorberThermalVaporCompressionMachanicalVaporCompressionShuangliangEco-EnergySystemsCoLtd(600481.SH)ShuangliangEco-EnergySystemsCoLtdismainlyengagedinindustrialwasteheatrecovery.Thecompany'smainproductsincludelithiumbromidecoolingandheatingunits,heatexchangersandaircoolersystems.Thecompanyranksfirstintheabsorptionchillersindustrywithmorethan25yearsofexperienceinmanufacturing.KaishanGroupCoLtd(300257.SZ)KaishanGroupCoLtdisprincipallyengagedinthedevelopmentandmanufactureofaircompressors,expansiongeneratorsandcompressors.Thecompany’sproductsarewidelyusedinmining,metallurgical,petrochemical,andmachinerymanufacturingindustriesforlow-gradeheatrecoveryandpowergeneration.Thecompany’sproprietaryscrewexpanderisworld-leadinginmechanicalperformance,whichhelpsthecompany’sbusinessventureintothedevelopmentofgeothermalpowerplants.CompanyImplicationsTheGreenLeapThedemandside–sectoraluseofenergy66Wealsonotethattherearetwootherrelevantissuesthatcannotbeignoredwhenconsideringthedecarbonizationofthebuildingsector.OneisthatChinaisstillamongdevelopingcountries,forwhichurbanandruralconstructionisstillthemostimportantgovernment-ledeffort.Policyplans,guidelinesandrequirementsforgreenbuildings,constructionmethods,greenbuildingmaterialsandoperationmanagementwillhaveasignificantimpactonthesegments.Secondly,asthelevelofChina'seconomicandsocialdevelopmentincreases,theend-consumersofthebuildingsector--residents--haveahigherdemandforbetterlivingenvironments.Therefore,thedecarbonizationoftheconstructionsectoralsoneedstoprovideresidentswithmorelivableworkingandlivingspaces.InMarch2022,theMinistryofHousingandConstructionreleasedthe14thFYPfortheDevelopmentofBuildingEnergyEfficiencyandGreenBuildings.Thismedium-termplancanbeseenasthecoreeffortsofthecentralgovernmenttodecarbonizethebuildingsector,withsevenspecifictargetsproposedforbuildingenergyefficiencyandcarbonemissionreductions.Fortheseproposedtargets,wehaveidentifiedthecurrentprogressforcomparativeanalysisinthefollowingExhibit.Thedecarbonizationofthebuildingsector,especiallyitslifecyclecarbonemissionreduction,playsanimportantroleinthedemandsidenet-zeroprogress.Thelifecyclecarbonemissionsofthebuildingsectormainlyconsistof:directandindirectemissions1)fromtheproductionofconstructionandbuildingmaterials2)fromtheconstructionprocess3)duringtheoperationperiodofthebuilding.Life-cyclecarbonemissionsfromthebuildingsectoraccountforabout50%ofallcarbonemissionsinChina.Amongthem,theproduction,construction,andoperationphasesaccountfor28%,1%,and21.6%ofthenationalcarbonemissions,respectively.TheBuildingSectorExhibit26:Theproportionoflifecyclecarbonemissionsofthebuild-ingsectortothetotalemissionsProduction28%Construction1%Operation22%Thebuildingsector,51%Source:ChinaBuildingEnergyEfficiencyAssociation,MioTechResearchTheGreenLeapThedemandside–sectoraluseofenergyTakingtheguidingpolicytrendsandthedevelopmentofthetechnologiesintoconsideration,weidentifythefollowingfieldswithsignificantupwardpotentialduringthe14thFYP(describedindetailinlaterchapters):Exhibit27:Comparisonontargetsforthe14thFYPandcurrentprogressforkeyperfor-manceindexesmentionedinthe14thFYPforBuildingEnergyEfficiencyandGreenBuildingDevelopmentEnergyefficiencyretrofittingofexistingbuildings(billionm2)Targetsforthe14thFYPperiodProgressbytheendofthe13thFYPConstructionofultra-lowandnear-zeroenergyfloorspace(billionm2)ProportionofprefabricatedconstructioninthenewbuildingsNewinstalledbuildingsolarPVcapacity(millionkW)Newgeothermalenergybuildingapplications(millionm2)RenewableenergyreplacementrateforurbanbuildingsProportionofelectricityconsumptioninbuildingenergyconsumption3.55.140.50.130.00%20.50%500.716(Yr2020)10017(Yr2020)8%6%55%44%Source:MinistryofHousingandConstruction,ChinaElectricityCouncil,MioTechResearch1.Prefabricatedconstructionwillbeanincreasinglycommonconstructionmethod,especiallyforsteelstructurebuildings.Atthesametime,theconstructionoftraditionalbuildingsshouldbeinlinewiththerequirementsofresourceconservationandasresource-efficientaspossible.2.Theconceptofnet-zerobuildings,includingpassivebuildingsandultra-lowenergyconsumptionbuildingscouldgaintractionwiththeimplementationofvariousgreentechnologies.Amongwhich,webelievebuilding-integratedphotovoltaicsandenergy-savingbuildingmaterialshaveremarkablepotentialforgrowth.3.Intelligentoperationandmaintenanceshouldbecarriedoutincombinationwiththelatestbuildingtechnologytorealizeenergysavingintheoperationphaseofthebuildingsector.TheheatingneedsforNorthernChinabuildingstakeup11%oftotalenergyconsumptionofthecountry.Theelectrificationofspaceheatingwithair-sourceheatpumpscanresultinsignificantemissionreduction.Prefabricatedconstruction(or“prefab”)isamethodofconstructionthatusescomponentsmadeoff-siteinafactory,whicharethentransportedandputtogetheron-sitetocreateastructure.Thistransfersalargeamountofon-siteworkfromtraditionalconstructionsitestofactories,wherebuildingcomponentsandaccessories(suchasfloorslabs,wallpanels,stairsandbalconies.)areprocessedandmade.Thesepartsarethentransportedtotheconstructionsite,assembledandinstalledthroughreliableconnections.Prefabscanbeconcrete,steelorwoodenstructures.Thestandardizeddesignallowsforfactorymassproductionandrefinedmanagement.1.Prefabricatedconstructionleadsthetrendoflow-carbonconstruction67TheGreenLeapThedemandside–sectoraluseofenergyThecarbonemissionsofprefabaresignificantlylowerthanthoseoftraditionalconstructionmethods.Accordingtoacademicstudies,prefabcanachieve51%carbonemissionreductioninproduction,transportation,andinstallationconstruction.Thisismainlyduetothetraditionalmethodbeingdifficulttofinelymanage,resultinginhighermaterialandenergywaste,whichincreasescarbonemissions.Inaddition,prefabhasgreaterpotentialforfurthercarbonemissionreduction.Thankstothestandardizeddesignandfactoryproduction,whichmakesiteasiertoimprovetheprefabproductionprocess.Theindustrializedconstructionofprefabsbringsenvironmentalbenefitsaswell.Asmostofthedirtyworkmovedtoindoorfactories,themethodeffectivelyreducedexhaustandwastewateremissionstotheenvironment.Constructiondust,noisepollution,aswellastheconstructionwastearereducedconsequently.Moreimportantly,prefabrequiresasmallernumberofconstructionworkerson-sitethantraditionalconstruction,whichiswidelybelievedtobeoneofthekeyreasonswhytheChinesegovernmentsparesnoeffortinpromotingprefab-thenumberofconstructionworkerswillbeunsustainableastheagingpopulationbecomesapparent.Prefabhasanumberofsignificantadvantagesovertraditionalconstruction.Therefore,intheearlystageofitsdevelopment,theMinistryofHousingandConstructionstronglyadvocatedandproposedamandatoryproportionofprefab’sshareinnewconstruction.Forexample,inthe13thFYPactionplanforprefab,theMinistryproposedtheproportiontoreach15%in2020.Infact,theratioofprefabconstructionintotalnewconstructionin2020was20.5%,significantlyexceedingthepolicytarget.Exhibit28:Comparisonbetweenprefabandtraditionalconstructionintermsofenergy-savingandenvironmentalperformanceSource:GuoshengSecurities,MioTechResearch160-210250-30020%-45%60%-75%35%-40%20%-25%65%-70%20%-30%40-50150-1600.051-0.0677.0-7.17.34-7.350.085-0.098.9-9.023.75-23.80PerformanceProjectDuration(Days)NumberofworkersrequiredonsiteWaterconsumption(m3/m2)Energyconsumption(kwh/m2)Constructionwastevolume(kg/m2)Dust,PM10(μg/m3)PrefabTraditionalConstructionImprovementsprefabvs.traditional60-7585-10068TheGreenLeapThedemandside–sectoraluseofenergyExhibit29:ProportionofnewprefabconstructiontototalnewconstructedfloorareainChina,2016to2020Source:MinistryofHousingandConstruction,MioTechResearch0.0%5.0%10.0%15.0%20.0%25.0%010020030040050060070020162017201820192020Prefabnewconsturctionarea(millionm2)Proportionofnewprefabconstructiontototalnewconstructedfloorspace(%)TheMinistryexpectedprefab’spenetrationratetoreach30%inthe14thFYP.Webelievethat30%targetiseasilyachievableby2025,andexcessivepenetrationratecanbeexpectedforthefollowingreasons:•ProvincialgovernmentshavesethigherpenetrationratetargetsthantheMinistry.Itisbeingpromotedbylocalgovernmentsfortheadvantagesoffosteringlocalindustriesandthereductionofdust,noiseandwastepollution.Exhibit30:Recentmeasurestopromoteprefabricatedconstructiononthelocalgovernmentlevel2022/3/31JiangsuTimeProvincePromotionalMeasuresContentsIssuedHighlightsoftheprovince'sconstructionindustrymodernizationeffortsin2022Bytheendof2022,theprovince'snewconstructionofprefabricatedbuildingswillaccountfor37%ofnewconstructionoffloorspaceinthesameperiod.2022/3/17Anhui2022/3/15Tianjin2022/3/7HunanProvince-wideseminaronassembly-styleconstruc-tionofDepartmentofHousingandConstruction14thFive-YearPlanforthedevelopmentofassembly-typebuildingsbyJinghaiDistrictProvincialprefabricatedbuildingdevelopmentpromotionmeetingTheproportionofassembledfloorspaceinnewurbanbuildingsintheprovincewillreachmorethan32%by2022,withChangsha,ZhuzhouandXiangtancityreachingmorethan35%.Theproportionofprefabricatedbuildingsinnewbuildingsintheprovincewillreachmorethan25%by2022.In2025,theimplementationratioofprefabricatedbuildingsfornewresidentialbuildingsinthewholeareaofJinghaiDistrictwillreach100%.69TheGreenLeapThedemandside–sectoraluseofenergyConsideringtheabovefactors,weexpectthatthepenetrationrateofprefabinnewinstructionswillexceedtheplanningtargetof30%,reaching32-38%by2025.Subjecttotheslowdownoftherealestateindustryandthefinancialconstraintsofrealestatedevelopmententerprises,China'snewconstructionfloorareadeclinedin2021andisexpectedtopickbackupin2022.Weassumethattheratioofprefabconcretestructureandsteelstructureis6:4.ThemarketsizeofprefabconstructioninChinaisestimatedtobearoundRMB1.5trillionin2020,andisexpectedtoreachRMB2.7trillionin2025,withaCAGRof12%infiveyears.By2030,themarketsizeofprefabisexpectedtoexceedRMB5trillion,andby2060,itwillreachRmb10trillion.•Preferentiallandconcessionconditionsarethemostpowerfulpolicytooltopromoteassembledbuildings.Currently,Beijing,Shanghai,Guangzhou,Shenzhen,Jiangsu,Zhejiang,HeilongjiangandChongqinghavealladdedprefabmandatestotheirlandconcessionrequirements.WiththeMinistry’s2022worksessiononprefabdeployment,weexpectthatfurtherprefabpenetrationraterequirementswillbeaddedtolandconcessionconditionsacrossthecountry.•Theincreaseintheconcentrationoftherealestatedevelopmentindustryisconducivetotheadvancementofprefabbuildings.Thebiggestprimarydriverforprefabcomesfromlargepropertycompanies.Vanke,forexample,beganpilotingprefabin2003andestablishedtheVankeFactoryCenter,whichisdedicatedtoprefabassemblysystems.Itsfirstprefabbuilthigh-riseresidenceprojectwasninemonthsaheadoftheconstructionschedulecomparedtotraditionalconstruction.Largerealestatedeveloperscaneffectivelytakeadvantageofthebenefitsofprefabconstructionbyestablishingacompletesetofbuildingconstructionmodelsthatcanbeadaptedtoprefabconstruction,whileamortizingthehigherupfrontcostsofprefabfactorywithprojectreplication.Theconstructiontimesavingsfromprefabcansubsequentlyreduceinterestandfinancialcosts,andimprovecapitalturnover.2022/3/2HangzhouIssuedImplementationOpinionsonPromotingHighQualityDevelopmentofConstructionIndustry35%implementationrateofnewresidentialprefabricatedbuildingsby2022.2022/2/25Hainan2022/2/25Jiangxi2022/2/21Henan2022/2/8HubeiIssuedSeveralOpinionsonFurtherPromotingHigh-QualityGreenDevelopmentofAssem-bledBuildingsintheProvinceIn2022,theproportionofnewprefabricatedconstructiontototalnewbuildingswillbe60%;by2025,theproportionwillbegreaterthan80%.ProvincialprefabricatedbuildingdevelopmentpromotionmeetingIn2022,theareaofnewprefabricatedconstructioninJiangxiProvincewillreach30%ofthetotalconstructionarea.IssuedThe14thFive-YearPlanforUrbanRenewalandUrbanandRuralHabitatinHenanProvinceIn2022,theareaofnewprefabricatedconstructioninHenanProvincewillreach30%ofthetotalconstructionarea.IssuedImplementationOpinionsonPromotingtheDevelopmentofNewTypeofBuildingIndustrial-izationandIntelligentConstructionBy2025,theproportionofprefabricatedbuildingsintheprovince'snewconstructionareawillbenolessthan30%.Source:Publicinformation,MioTechResearch70TheGreenLeapThedemandside–sectoraluseofenergyThroughMioTech’sESGdata,wefindanincreasingnumberofChinesepropertydevelopersandengineeringcompaniestakingonprefab.In2020andearlier,largepropertydevelopershavereportedlyimplementedprefabricatedtechnologies,whilewefoundoutthatmorerecentlyin2021,developersofsmallerbusinessesandregionalconstructioncompanieshavealsostartedreportingtheirengagementinprefabricatedconstruction.Exhibit31:Prefabmarketsizeprojections,2022-206033.236.749.410.620.239.52396239623962776277627762.715.1410.0732%55%80%60%60%60%40%40%40%2025E2030E2060ESource:NationalBureauofStatistics,MinistryofHousingandConstruction,MioTechResearchNewconstructionfloorspace(billionm2)UnitcostofPCstructures(RMB/m2)UnitcostofPSstructures(RMB/m2)Marketsizeofprefabconstruction(RMBtrillion)Newconstructionofassemblies(billionm2)Percentageofprefabconcrete(PC)Percentageofprefabsteel(PS)Prefabpenetrationrate2020A30.727.328.730.131.66.36.37.28.19.222312264229723302363277627762776277627761.511.551.782.042.3220.5%23%25%27%29%68%60%60%60%60%32%40%40%40%40%2021E2022E2023E2024E71Note:Theaveragemarketcapofreportingdevelopersin2020isUSD4.8bn,whiletheaveragemarketcapofthosein2021isUSD2.8bn.Exhibit32:NumberofpropertydevelopmentcompaniesreportingtheuseofprefabintheirESGreports202120200246810121416NumberofCompaniesReportingPrefabBuildingintheirESGReportsSource：MioTechResearchTheGreenLeapThedemandside–sectoraluseofenergyThebiggestchallengethathindersthelarge-scaleapplicationofprefabisitseconomyofscale.CurrentengineeringpracticeshowsthatthecostofprefabconcreteandsteelisgenerallyRMB300toRMB2,500persquaremeterhigherthanthatoftraditionalcast-in-placestructures.Thehighercostisattributedtothefactthatthecurrentbuildingstructuredesignhasnotbeenoptimizedforprefab,wastingprefab’smaterial-savingpotential,whilethehighup-frontinvestmentofprefabfactoriesandinsufficientutilizationoffactorycapacitydrivingupthecostofprefab.Itisexpectedthatastheprefabscaleswiththeincreasingpenetration,theeconomyofscalewillbefurtherimproved.ChangshaBroadHomesIndustrialGroupCoLtd(02163.HK)Thecompanyprovidescomprehensivesolutionsforindustrializationoftheconstructionindustry.Thecompanyoperatesitsbusinessesthroughthreesegments.Theprefabconcreteunitmanufacturingsegmentprovidescustomerswithcomprehensivesolutionsforprefabricatedconstruction,includingunitdesign,manufacturingandassemblingconsultation.Theprefabconcreteequipmentmanufacturingsegmentprovidesequipmentspeciallydesignedtoprovidevalue-addedservices.Theconstructioncontractingsegmentperformstheconstructioncontractinaccordancewithdesignsandtimetableprovidedbyarchitecturaldesignorganizationsandtheprojectowner.Thecompanyhas15self-ownedfactoriesandover70productionlines.CompanyImplicationsChangjiang&JinggongSteelBuildingGroupCoLtd(600496.SH)Thecompanyisaleadingcompanyinthedomesticprefabsteelindustry.foundedin1999,TheCompanyisprincipallyengagedinthemanufacturingofsteelstructureindustrialbuildings,commercialbuildings,publicbuildingsandcurtainwalls,aswellastheprovisionofrelatedengineeringservices.Thecompany'smainproductsincludelightsteelstructures,spacelargespansteelstructures,high-risesteelstructures,envelopesystemsandfasteners,aswellascurtainwallsystems.Itmainlyoperatesitsbusinessesinthedomesticandoverseasmarkets.72TheGreenLeapThedemandside–sectoraluseofenergy73Thepassivebuildingconceptisconsideredoneoftheimportantdirectionsoffuturebuildingdevelopment.InSeptember2019,China'snationaltechnicalstandardfornear-zeroenergybuildingswasofficiallypublished.Thisisthefirsttimethatnear-zeroenergybuildingsareclearlydefinedintheformofanationalstandardintheworld,anditisalsothefirstguidingnationalstandardforbuildingenergyefficiencyinChina.Atpresent,BeijingandprovincessuchasShandong,HenanandJilinhaveintroducedincentivesandtechnicalguidelinesforthedemonstrationofultra-lowenergyconsumptionbuildings.Asultra-lowenergyconsumptionbuildingtechnologiescontinuouslyevolve,relevantapplicationsforcivil,publicandhigh-risebuildingshavebroadspacefordevelopment.Thepassivebuildingsystemcanbeusedinthedesignofthebuildingtomaximizeitsenergysavingandemissionreductionperformanceduringitsoperationphase.Ultra-lowenergybuildingsandnear-zeroenergybuildingscanbeconsidered"passivebuildings",whichareconstructedbycombiningvariouspassiveenergy-savingmeasuressuchasnaturalventilation,naturallighting,solarradiationheatingwithimprovedfacadeheatinsulation.Near-zeroenergybuildingsareahigherlevelofultra-lowenergybuildings.Furthermore,ifabuildingconsumesanequalorsmalleramountofenergythanitsenergygeneration,itcanbeconsideredanet-zerobuilding.2.BIPVandenergy-savingmaterialsempowerpassivebuildingsExhibit33:EnergyconsumptionandsupplyofvarioustypesofbuildingsSource:Publicinformation,MioTechResearchConventionalBuilding65%Energy-saving75%Energy-savingNear-zeroBuildingNet-zeroBuildingNet-positiveBuildingEnergyConsumptionEnergyGenerationBuildingPVoptionalBuildingPVrequiredTheGreenLeapThedemandside–sectoraluseofenergy74BuildingIntegratedPhotovoltaic(BIPV)marketexplodeswithenergytransitionandpassivebuildingdevelopmentBuildingIntegratedPhotovoltaic(BIPV)istheintegrationofphotovoltaics(PV)intothebuildingenvelope.ThetechnologyisexpectedtobecomeanimportantapplicationscenariofordistributedPV,whichisdevelopingrapidlyandgraduallybecomingthemainstreamofPVnewinstallations.AccordingtotheNationalEnergyAgencydata,in2021,China'stotaldistributedPVreached107.5GW,aboutone-thirdofallinstalledPVpowergenerationcapacity.Intermsofnewinstallations,distributedPVcontributes29GW,accountingforabout55%ofallnewinstalledPVcapacity.Forcomparison,thenumberwasonly6%in2013.Supportedbyfavorablepolicies,photovoltaicfacilitieshavegraduallybroadenedtheirapplicationinthebuildingsector.In2021,thecentralgovernmentstartedtorolloutguidingpoliciesforbuildingPVapplications,andsettargetsforrooftopPVinstallations.LocalgovernmentshavealsointroducedsubsidyprogramsforBIPVfrom2021onwards.Exhibit34:PhotoofBIPVroofSource：solarpowerportal.co.ukExhibit35:PolicydocumentsonBIPVandtheirkeytakeawaysOct-21DateCentralgovernmentpoliciesKeytakeawaysStateCouncil'sActionPlanforCarbonPeakingby2030Promotetheintegrationofphotovoltaicpowergenerationandbuildingapplications.By2025,theurbanbuildingrenewableenergyreplacementrateof8%,newpublicinstitutionsbuildings,newfactoryroofPVcoverageratetoreach50%.TheGreenLeapThedemandside–sectoraluseofenergy75Jun-21theNationalEnergyAgency'sNoticeofontheSubmissionofPilotProgramofRooftopDistributedPhotovoltaicDevelopmentfortheWholeCounty(City,District)Fordemonstrationprojects,itrequirestheratioofthetotalroofareasuitableforPVinstallationgenerationnotlessthan50%inpublicinstitutions;40%forschools,hospitals,andotherpublicbuildings;30%forindustrialandcommercialplants;and20%forruralresidentialbuildings.May-21MinistryofHousingandConstructionOpinionsonStrengtheningGreenandLow-carbonConstructioninCountyCitiesByraisingrooftopphotovoltaicapplicationsonnewfactories,publicbuildingsandotherrooftops,andpromotingtheuseofbuildingintegratedphotovolta-ics,itintendstobuildlow-carbonenergysystemsincountycities.Decentralizedwindpower,distributedphotovoltaic,intelligentphotovoltaicandothercleanenergyapplicationsarepromoted.Nov-21DateLocalgovernmentpolicies(selected)KeytakeawaysGuidelinesfortheDeclarationofSubsidyFundsforDemonstra-tionProjectsofPVBuildingIntegrationApplicationinXi'anCityFornewBIPVprojects,aftercompletionofthegridandacceptance,thedeveloperisgivenaone-timesubsidyofRMB0.3/wattaccordingtotheinstalledcapacity,withamaximumofRMB1millionforasingleproject.May-21MeasuresforPromotingGreenLow-carbonDevelopmentinHuangpuDistrict,GuangzhouDevelopmentZone,GuangzhouHigh-techZoneFordistributedPVgenerationinvestments,atariffsubsidyofRMB0.15/kWhonnon-publicbuildingroofs,andRMB0.3/kWhonpublicbuildingareprovidedtothedeveloper.Asingleprojectcanreceivesubsidiesforupto5years.Mar-21MeasuresfortheManagementofGreenBuildingDemonstra-tionProjectsinNanjingProvidebuildingPVwithasubsidyofnomorethanRMB500/kW.Inprinciple,themaximumsubsidyforasingledemonstrationprojectdoesnotexceedRMB2million.Source:Publicinformation,MioTechResearchDateCentralgovernmentpoliciesKeytakeawaysTheGreenLeapThedemandside–sectoraluseofenergy76Currently,therearetwomainformsofbuildingphotovoltaicfacilities.Accordingtothedegreeofintegrationintothebuilding,thesecanbedividedintoBuildingAttachedPhotovoltaic(BAPV)andBIPV.Withitsadvantagesincostandperformance,BIPVisgraduallybecomingthemainstreamtechnology.•BAPVinstallsPVmodulesonexistingbuildings.Itismainlyattachedtotheroof,wallandotherbuildingstructureswithoutaffectingtheexistingbuildingmaterials.•BIPVintegratesPVmodulesintothebuildingstructure.ItservesthefunctionofbothPVpowergenerationandbuildingmaterial.Exhibit36:BAPVandBIPVcomparisonsSource:ChinaEnergyNetwork,MioTechResearchCostStructuralperformanceAestheticsApplicablefieldsBuildingAttachedPhotovol-taics(BAPV)BuildingIntegratedPhotovoltaics(BIPV)Constructioncost:BAPVsystemunitcostRMB572/sqmSafety:undertheinfluenceofexternalwindforce,thesafetyleveliscompromisedWaterproofness:potentialwaterleakagewithdeformationcausedbysteppingduringconstruction,self-weightload,andetc.Usuallyonlyapplicableonflatsurfaces,withpoorornamentalpropertiesPVmodulesareembeddedinthebuildingmaterials,andcanbeincorporatedasornamentalfeaturesinthearchitecturaldesignNewbuildings-BIPVcanbedesignedandinstalleddirectly,mainlyforbuildingswithhighroofutilizationratesuchascommercialandindustrialbuildingsOldbuildings-suitableforretrofittingprojectswithlowcostofdemolitionworkssuchassteelstructurebuildingsOldbuildings-BAPVhascostadvantagesforbuildingswithalargeamountofdemolitionworkWaterproofness:designedwithdrainagesysteminplace,andthestructureisdesignedwithanti-vibrationfeaturestopreventroofdeformationSafety:roofstructurelevelofsafety,withgoodloadbearingcapacityConstructioncost:BIPVcostsRMB408/sqm,costsavingsofRMB164persqmLifespan:About15-20yearsLifespan:about50yearsTheGreenLeapThedemandside–sectoraluseofenergy77BAPVhasbeenthemainstreamPVbuildingapplicationinChinauptonowpartiallybecauseitcanbedirectlyretrofittedtotheoldbuildings,whilethedevelopmentofBIPVwaslimitedbytheintegrationandinstallationtechnologiesintheearlydays.Rightnow,BIPVhastheobviousedgeoneconomicsandperformance.ItisforeseeablethatBIPVwillbethepreferredchoicefornewbuildings.Intheoldbuildingsretrofittingmarket,BIPVandBAPVwillsharethemarket.Wecalculatedmarketsizeandmadea2025forecastbasedoncompletedconstructionareadatafromtheNationalBureauofStatistics.IndustrialandcommercialroofswillbecomethebreakthroughareaforBIPVinstallation.Weestimateoverone-thirdofBIPVwillbeinstalledonindustrialroofs.ThetotalmarketsizeofBIPVshallreachRMB110billionin2025.Exhibit37:BIPVmarketsizeprojections,2025Source:BureauofLandandResources,BureauofStatistics,MioTechResearchResidentialCommercialbuildingsIndustrialbuildingsInstitutions,educationandhospitalbuildingsOfficebuildingsCultural,sportsandrecreationalbuildingsOthersTotalCompletedconstructionareain2021(millionm2)Roofarea(millionm2)PV-install-ablearea(billionm2)BIPVinstallation(GW)Marketsizein2025(RMBbn)Penetrationrate2,7061,17710%11811.829.425311630%353.58.756432850%16416.441.020913840%555.513.816711040%444.411.0412740%111.12.71439440%383.89.44,0831,98946446.4115.9TheGreenLeapThedemandside–sectoraluseofenergy78TheBIPVtechnologyhasnotyetbeenimplementedonalargescale,mainlyduetothefragmentationofsupplychains.BIPVintegratesbuildingmaterialwithPVmodules.Thetwoindustrieshavedistinctiverequirements:ForPV,energygenerationefficiencyisthekey,whileforthefunctionofbuildingmaterial,thestructuralstrength,aesthetics,anddurabilityaremuchmoreimportant.Itisnecessaryforministriestoissueunifiednationalstandardsassoonaspossible,tostandardizethemanufacturingandinstallationofBIPV.Thestandardsneedtoaddresstopicsonrawmaterialperformance,constructionandinstallation,safetytesting,integratedequipmentstandards,andcompliancerequirementsforendproducts.Exhibit38:BIPVinstallationprojections(GW),2021Eand2025ESource:BureauofLandandResources,BureauofStatistics,ChinaBIPVAlliance,MioTechResearch051015202530354045502021E2025EResidentialCommercialFactoryInstitution,educationalandhospitalOfficebuildingCulture,sportandrecreationalbuildingOthersExhibit39:TheBIPVvaluechainsegmentsSource：BIPVBoost,MioTechResearchUpstreamMidstreamDownstreamPVcellmanufacturer(Grossmarginofabout25%)Buildingmaterialmanufacturer(Grossmarginofabout10%)ModuleIntegratorContractorDeveloperandOperator(Grossmarginofabout25%)TheGreenLeapThedemandside–sectoraluseofenergy79AccordingtothecalculationofBIPVBoost,thetwosegmentswiththehighestrateofreturninthevaluechainarePVmodulemanufacturersandoperators,eachenjoyingagrossprofitmarginof25%,andarelocatedintheupstreamanddownstreamofthewholevaluechain.Therefore,forBIPVrooftopendusers,thetotalcostforinstallingBIPVmainlycomesfromthecostofthemodules(66%),withprojectplanningandconstructionaccountingfortherestofthetotalcost.Exhibit40:TypicalcoststructureofBIPVSource:BIPVBoost,MioTechResearchModulemanufacturingcost66%Designandotherindirectcosts19.50%Constructionandinstalla-tioncosts14.50%PVcell-40%Sketchplanning-4%Transportationandwarehous-ing-2%ModuleAssembly-12%Otheraccessories(inverters,cables,etc.)-14%Technicaldesign-7.5%Administrativeandoverhead-8%Preparation-0.5%Installation-12%ForBIPVcontractorswishingtoexpandtheirbusiness,verticalintegrationpathwaysarepossibleinbothbackwardandforwarddirections:Assumingtheformofpowergenerationforself-consumptionandresidualpowersupply,weanalyzedtheeconomicsofBIPVinstalledonasteelstructurefactorywitharooftopareaof1,000squaremeters.Theproject’sinternalrateofreturnis13%andthepaybackperiodis6.56years.AlthoughtheinitialinvestmentofBIPVishigherthantheconventionalroof,theendusercanrecoverthecostinarelativelyshortamountoftime.•Backwardintegration:BIPVcontractorscancooperatewithPVcellmanufacturerstogainadvantagesonenergygenerationefficiency.JustlikeotherdistributedPVplants,theeconomicsofBIPVislargelydeterminedbyitspowergenerationefficiency.ExpandingbusinesstoPVmodulemanufacturingprovidescostreductionpotentialonthiskeycomponent.•Forwardintegration:BIPVcontractorscanalsoexpandtheirbusinesstotheinvestmentandoperationofthiselectricitygenerationdevice.Thisenablesconstructioncompaniestoearnlong-termstableoperatingincome.Ontheotherside,expandingtoinvestmentandoperationsrequiresconstructioncompaniestohavehigherrisk-takingabilityandstrongfinancialsupport.TheGreenLeapThedemandside–sectoraluseofenergy80PromotingtheintegrationofsolarPVwithnewbuildingshasbeenaninevitabletrendforpropertydevelopersin2021.Wesaw57companiesinstallPVintheircommercial/industrialpropertydevelopmentsin2021incomparisontoonly27in2020.Exhibit41:EconomicanalysisofaBIPVprojectIndicatorsBIPVinstallationcost(yuan/sqm)Annualsunlighthours(h)RoofutilizationratePVpowergeneration(W/m2)LifespanElectricitypriceOperationandmaintenancecostsSubsidyProportionofelectricitysoldbacktothegridSource:MioTechResearchUpfrontCostOperationCostReturnRoofarea1000sqmBIPVunitcostRMB408persqmTotalcostOperationandmaintenance3%oftheinitialinvestmentAnnualoperationcostRMB2,280ElectricitybillsavingSaleofexcesselectricityRMB9,200AnnualdepreciationRMB25,840SubsidyRMB5,000RMB51,200RMB408,000AssumptionsRMB408/sqm1000100%100Theprojectlifetimeisassumedtobe25yearsThepriceofelectricityforselfuseiscalculatedasRMB0.64/kWh;BenchmarktariffisRMB0.46/kWh.3%oftheinitialinvestment.RMB0.05/kWh20%TheGreenLeapThedemandside–sectoraluseofenergy81ZhejiangChintElectricsCoLtd（601877.SH）Thecompany’smainbusinessesincludelow-voltageelectricaldevicemanufacturingandPVpowerplantoperation.In2020andthefirsthalfof2021,thecompanynewlyinstalled1.8GWand1.05GWofcapacityforhouseholds,accountingfor17.82%and17.84%ofthetotaldomestichouseholdsinstalledcapacity,rankingfirstinChina’smarket.ArctechSolarHoldingCoLtd（688408.SH）ArctechSolarHoldingCoLtdisahigh-techcompanyfocusingonsolarPVbrackets.ThemainproductsarePVtrackingbracketsandfixedbrackets.Trackingbracketsaremainlycomposedofthreeparts:structuralsystem(rotatablebracket),drivesystemandcontrolsystem.Fixedbracketsarecomposedofcolumns,mainbeams,purlins,foundationsandothercomponents.ItisalsoinvolvedinthedevelopmentofBIPVproducts.Thecompanydistributesitsproductswithinthedomesticmarketandtooverseasmarkets.Bytheendof2020,thecompanyhasinstallednearly1,100projectsin40countriesaroundtheworld.ChangzhouAlmadenCo.,Ltd.(002623.SZ)ThecompanyisprincipallyengagedintheresearchanddevelopmentofPVglasscoatingtechnology,aswellastheproductionandsaleofPVcoatedglass.TheCompanydistributesitsproductsinbothdomesticandinternationalmarkets.TrinaSolarCoLtd(688599.SH)TrinaSolarCoLtdisacompanymainlyengagedinresearch,development,productionandsalesofphotovoltaicproducts.Thecompanyoperatesfivesegments,comprisingPVmodules,systemproducts,PVpowerplantengineeringconstructionmanagement,PVpowerplantsalesandsmartenergy.ThePVmodulessegmentoperatesR&DproductionandsalesofmonocrystallineandpolycrystallinePVmodules.ThesystemproductssegmentprovidescustomerswithTrinaintelligentoptimaldistribution,commercialsystemsandhouseholdsystems.ThePVpowerplantengineeringconstructionmanagementsegment’sbusinessesinvolvepowergenerationofPVpowerplantsanditsoperationandmaintenance,aswellasenergycloudplatformoperation.Thecompanysellsitsproductsandservicestobothdomesticandinternationalmarkets,includingtheUnitedStates,Europe,JapanandLatinAmerica.CompanyImplicationsEnergy-savingbuildingmaterialsPassivebuildingisabuildingformdrivenbylow-carbondesign,selectingbuildingmaterialsandelectricalappliancesofoutstandingenergy-savingperformance,andintegratedwithrenewableenergygeneration.Withthehelpofefficientexternalwallthermalinsulationsystems,high-performancewindows(doubleortriple-paned)anddoors,heatandmoisturerecoverableventilationsystems,andshadingsystems,passivebuildingscanachieveconstanttemperature,humidity,andtemperatureintheindoorenvironment,relyingonjustnaturalheatgainssuchassolarradiation,humanbodyheat,andheatdissipationbyappliances.TheconceptofpassivebuildingwasfirstputforwardbyGermanyandpromotedwiththenameultra-lowenergyconsumptionbuildinginChina.Itsapplicationinresidentialandcommercialbuildingsisgraduallyshiftingfromdemonstrationprojectstocommercialprojects.Anumberofrealestatecompanies,suchasLandseaGroup,LongforGroupandYuandaHousing,haveincorporatedpassivehousesintotheirproductofferings.Benefitingfromthistrend,nicemarketssuchashigh-performancewindows,shadingsystems,TheGreenLeapThedemandside–sectoraluseofenergy82Furthermore,theimprovementofthelivingcomfortofpassivebuildingshasmadetherelatedproductspenetraterapidlyinthedomestichigh-endhousingandtheforeigndevelopedcountriesmarketinEuropeandNorthAmerica.Weexpectthattherevenueofleadingenterprisesinthevaluechainwillmaintainasustainedgrowthofmorethan25%CAGRinthenextfewyears.thermalinsulationproductswillgaintractionandpromotetheinnovationanddevelopmentofupstreamenergy-savingmaterials.Inthe14thFYPfortheDevelopmentofBuildingEnergyEfficiencyandGreenBuildingtheMinistryofHousingsetsthetargetfortheultra-lowenergyconsumptionbuildingareaduringthe14thFYPperiodof50millionsquaremeters,comparedwith10millionsquaremetersforthe13thFYPperiod.Basedontheincrementalcostofultra-lowenergyconsumptionbuildingsofRMB500-1,000persquaremeter,itisestimatedthatthedomesticmarketsizefortheapplicationofenergy-savingbuildingmaterialsinultra-lowenergyconsumptionbuildingswillincreasenearlyRMB40billion,oranaverageof38%CAGRfromnowto2025.Inaddition,wepredictthatenergy-savingbuildingmaterialswillcontinuetherapidgrowthfrom2025to2030,andmaintainanaverageannualgrowthrateof5%after2030,reachingamarketsizeofRMB246billionin2060.Exhibit42:Projectionsofapplicationscaleofenergy-efficientbuildingmaterialsforultra-lowenergybuildings(RMBbillion)Source:MioTechResearch05010015020025030013thFive-YearPlan14thFive-YearPlan2030E2060ETheGreenLeapThedemandside–sectoraluseofenergy83JiangyinHaidaRubberandPlasticCo.,Ltd(300320.SZ)ThecompanyisprincipallyengagedinR&Dt,productionandsaleofrubberandplasticpartsforhigh-endequipment.Thecompany’sproductofferingsrevolvearoundtwomainfunctions-sealingandvibrationdamping,whichareappliedinconstructionandtransportationsectors.Theconstructionapplicationsincludebuildingexteriorwindowseals,curtainwallseals,aluminumalloydoorsandwindowrubberstrips.Inaddition,thecompany'srubberproductshavealsobeenintegratedtotheBIPVproducts,withleadingcomprehensiveperformance.ShandongYumaSun-ShadingTechnologyCorpLtd(300993.SZ)Thecompanyisprincipallyinvolvedintheresearchanddevelopment,productionandsalesoffunctionalshadingmaterials.Itsmainproductsincludeshadingfabrics,dimmablefabricsandsunlightfabrics.Thecompany’sproductsaremainlyusedinthefieldsofhomeinteriorshading,publicconstructionengineeringinteriorshadingandexteriorshading.Thecompanydistributesitsproductsbothinthedomesticmarketandoverseas.AsiaCuanonTechnology(Shanghai)Co.,Ltd.(603378.SH)ThecompanyisaChina-basedcompanyprincipallyengagedinR&D,manufacturing,salesandservice-providingofbuildinginsulationdecorationintegratedproducts,buildinginsulationmaterials,functionalarchitecturalcoatingsanditsapplicationsystems.Thecompanyoperatesthroughtwomainsegments.Themainbusinesssegmentisprincipallyinvolvedinthesalesofbuildingdecorationmaterials,includinginsulationdecorativepanels,insulationboardandfunctionalarchitecturalcoatings,amongothers.Theotherbusinesssegmentismainlyengagedinthesalesofrelatedsupportingmaterials.BeijingOrientalYuhongWaterproofTechnologyCo.,Ltd.(002271.SZ)BeijingOrientalYuhongWaterproofTechnologyCo.,Ltd.Istheleadingcompanyintheresearch,development,manufactureanddistributionofwaterproofmaterials.Inthepastfewyears,thecompanysuccessfullyextendeditsbusinessfields,toenergy-savingandheatpreservation,civilbuildingmaterials,non-wovenfabrics,architecturalcoatings,buildingrepair,mortarpowder,andspecialfilms.Thecompanywentpublicin2008.Itsoperatingincomein2021exceededRMB32billion,whichisa40-foldincreasefrom2008to2021.CompanyImplicationsBuildingenergyuse,suchascooling,lighting,andhouseholdappliances,hasbeenmostlyelectrified.Theuseofhigh-efficiencyairconditionersandenergy-savingLEDlampshasalsogreatlyimprovedtheoverallenergyefficiency.Atthesametime,theenergyconsumptionforspaceheatingisstilldominantlysuppliedbytraditionalfossilfuels,i.e.,coal-firedpowerplantsforcentralheatinginNorthernChinaandhouseholdnaturalgasboilersinthesouthernregion.Tokeepupwithoverallelectrificationprogressinthebuildingsector,theapplicationofairsourceheatpumptechnologyforspaceheatingisthekey.Anairsourceheatpumpworksbyabsorbingheatfromoutsideastructureandreleasingitinsideusingthesamevapor-compressionrefrigerationprocessandmuchthesameequipmentasairconditionersbutusedintheoppositedirection.Theairsourceheatpumpcanhaveflexibleconfigurationsattheendpointofheattransfer,includinghotairblower,radiator,floorheating,ordirectlysupplydomestichotwater.Inthesummertime,theairsourceheatpumpcanalsobeusedasacoolingsystem.3.Airsourceheatpumps-thekeydriverforspaceheatingelectrificationTheGreenLeapThedemandside–sectoraluseofenergy84Heatpumpsforheatingcanbewidelyusedincommercialbuildingsandresidentialhomes.Theseproductsdirectlyreplacetraditionalboilersburningcoal,naturalgasandotherfossilfuels,reducingtheuseoffossilfuelstoachieveelectrification.Inaddition,heatpumpsaremuchmoreenergy-efficient,consumingonlyelectricitytodrivethecompressorbyabsorbing"freeheat"fromtheair.Intheory,anairsourceheatpumpcanproducemorethan3-4unitsofheatforevery1kWhofelectricityconsumed,implyingacoefficientofperformance(COP)valueof3-4),comparedwithatraditionalelectricheatingdeviceusingresistanceheating,whichhasaCOPvalueofabout1),ora75-80%ofenergyconsumptionsavingunderthesamecircumstances.Takingtheenergyconsumptionofindoorheatingasanexample,theresultsofthethreeheatingschemesaresignificantlydifferent.If10kWofheatoutputisneededforthisroomtomaintainanairtemperatureof20degreesCelsius,usingcoal-firedheatingrequires14.286kWofenergyinputandemitsalotofpollutantsfromtheprocess;usingaresistanceheatertodirectlyheattheairintheroomrequiresabout10kWofelectricalpower;usingaheatpumpofCOPvalueofthreeinthesamescenarioconsumesonly2.857kWofelectricalenergy.Exhibit43:TheworkingprincipleofairsourceheatpumpSource:ChinaEnergyConservationAssociationHeatPumpSpecialCommittee,MioTechResearch0.47Four-wayValveCompressorExpansionValveVaporizerCondenserExhibit44:Energyconsumptionundercoal-fired,electricheatingandheatpumpheatingschemesSource:ChinaEnergyConservationAssociationHeatPumpSpecialCommittee,MioTechResearchCoalCoal-firedboilerResistanceheaterHeatpumpIndoorspaceIndoorspaceIndoorspace14.286KW10KW10KWC0P=3.52.857KW7.143KW10KW(a)(a)(b)(c)(b)(c)10KWElectricityElectricity20C20C20CTheGreenLeapThedemandside–sectoraluseofenergy85AcceleratedintroductionindomesticandinternationalretailmarketsAftermorethanadecadeofiterations,theperformanceofairsourceheatpumpheatingproductshasimprovedsignificantly.Earlyproductswerelimitedtopoorlow-ambient-temperatureperformance,mediocreenergyefficiency,andhighequipmentandinstallationcosts,andwereonlyusedintemperateregionsinpartsofEastandCentralChina,wherewintersarewarmandsummersarecool.Withtheimprovementofdefrostingtechnologyandsub-zerolowtemperatureperformance,airsourceheatpumpsnowcanoperateat-20degreesCelsiusorevenlowertemperaturewhileachievinganenergyefficiencyperformanceofaboutCOP2,whichmeansthattheycanstillguarantee50%energysavingrelativetoresistanceheatersunderextremeweatherconditions.Productlifeandreliabilityhavealsobeenimproved.Today'sresidentialairsourceheatpumpcanworkefficientlyfor15-25years.Ontheotherhand,insulationofthenewbuildingshasimprovedinthepastdecade,guidedbythenationalgovernmentrequirements,whichworksinfavorofheatpumpheatingasitisgreatlyaffectedbytheinsulationperformanceofbuildings.Followingthetechnologyandproductadvancements,bigplayersstartedtoentertheheatpumpmarketandactivelypromotestandardsdevelopment.Twonewnationalstandardsforheatpumpheatingwereintroducedin2019,settingspecificstandardsonenergyefficiency,heatingperformance,reliability,maintenance,etc.Thestandardsplayedagreatroleinpromotingthedevelopmentoftheheatpumpindustry.TheInternationalEnergyAgency(IEA)emphasizedinitsreportthatundertheglobalnet-zeroemissionsscenarioby2050,salesofnewgas-firedboilersshouldstopafter2025,andthenumberofheatpumpinstallationsneedstoreach290millionand600millionunitsin2025and2030,respectively.Asof2020,only180millionheatpumpshavebeeninstalledworldwide,afarcryfromthetargetfigure.InEuropeandNorthAmerica,themarketshareofairsourceheatpumpshasgrownsignificantly.IntheUnitedStates,annualairsourceheatpumpsaleshavegrownfrom2.3millionunitsin2015to3.4millionunitsin2020.Heatpumpsnowaccountformorethan40%ofnewhomes.InEurope,between2015and2020,theExhibit45:NationalstandardsonairsourceheatpumpheatingproductsSource:ChinaAirEnergyIndustryDevelopmentReport,MioTechResearchWaterchilling(heatpump)packagesusingthevaporcompressioncycleGB/T18430-2016ProvidesspecificationsonairsourceheatpumpheatingandcoolingproductsfortheSouthernChinamarket.Minimumallowablevaluesofenergyefficiencyandenergyefficiencygradesforlowambienttemperatureairsourceheatpumps(waterchiller)packagesLowambienttemperatureairsourceheatpump(waterchilling)packagesGB37480-2019GB/T25127-2020ProvidesspecificationsonairsourceheatpumpproductsforthenorthernChinamarketMandatestheenergyefficiencyrequirementsoflow-temperaturetypeairsourceheatpumpwaterheatingmachine.TheGreenLeapThedemandside–sectoraluseofenergy86TheExistingmarketandoutlookIn2021,thetotalsalesofairsourceheatpumpsisRMB20.33billion,anincreaseof29%year-on-year,ofwhichproductssupplyingthedomesticheatingmarketaccountforRMB7.77billion.WiththeoverallflatgrowthoftheHVACindustry,airsourceheatpumpshaveshownasignificanttrendofincreasedpenetration.BasedonanaveragepriceofRMB15,000persetofheatpumpservicing100squaremetersofindoorheating,theheatingareaoftheairsourceheatpumpapplicationisabout52millionsquaremeters.Combinedwiththenationalcommercialhousingsalesareaof1.79billionsquaremetersin2021,thecurrentpenetrationratehasnotexceeded3%.Accordingtotheabovediscussion,theairsourceheatpumpmarketconsistsoftwosegments:distributedheatingneedsinthenorthernpartofChinaandinthesouthernpartwithhotsummersandcoldwinters.ThedevelopmentofthedistributedheatingmarketinthenorthernpartofChinamainlyreliesonpolicyplanningandsupport.Accordingtothe14thFYPBuildingEnergyEfficiencyandGreenBuildingDevelopmentPlan,350millionsquaremetersofexistingbuildingswillberetrofittedwithenergy-savingmeasuresduringthe14thFYPperiod.Thehotsummerandcoldwinterareasinthesouthwillbemainlydrivenbythemarketitself,andairsourceheatpumpproductswillfurtherimprovetheirproductperformanceandservicecapabilitieswhilereducingcosts,similartothepathofEVmarketexpansion,andachieveasteadygrowthinpenetrationrate.salesofheatpumpshaveanaverageannualgrowthrateof12%.In2020,theEUmemberstateswillreachatotalof1.8millionsales.China'sdecentralizedheatingmarketismainlycomposedof1)buildingsthathavenotbeencoveredbythecentralheatingsysteminnortherncitiesandtowns,mainlyruralresidentialbuildings,and2)commercialandresidentialbuildingswithheatingneedsinthesouthernpartsofChina.Airsourceheatpumpsaresuitablefortheweatherconditionsintheseareas,witheitherhotsummerandcoldwinter,orseverecoldclimateconditions.Bothmarketshavelargepotentialfordevelopment.Atpresent,thebuildingareaofdistributedheatinginruralareasinnorthernChinais7billionsquaremeters.Aimingatacleanheatingrateof50%,therearestill3.5billionsquaremetersofruralbuildingsthatneedtoberetrofittedinthefuture.Apartfromgasanddirectelectricheating,if40%ofthemareretrofittedwithairsourceheatpumps,thenthisisthemarketof1.4billionsquaremeters.Inthesouthernareaswithhotsummerandcoldwinterclimate,thereareabout18billionsquaremetersofbuildingareawithpotentialheatingdemand.Atpresent,theheatingsysteminstallationrateisnothighandtheaveragehouseholdenergyconsumptionisatarelativelylowlevel.Buttheheatingdemandisexertingfastgrowth,withanaverageannualgrowthrateofmorethan50%.Itisalsoworthmentioningthatheatpumpairconditionersarealsobeingintroducedtotheelectricvehicle(EV)marketrapidly,replacingtraditionalPTCresistanceheating.TheenergyefficiencyadvantageofheatpumpairconditionersisalsothemainreasonforitssharegrowthintheEVmarket.ThedemandfromEVwillalsodrivethedevelopmentprogressofheatpumptechnologiesandproducts.TheGreenLeapThedemandside–sectoraluseofenergy87Weexpectthatby2025,5%/9%/14%/20%ofnewhousinginthesouthernhotsummerandcoldwinterclimateareaswillbeheatedbyairsourceheatpumps,i.e.,about136millionsquaremeters,andtheannualsalessizeofairsourceheatpumpsinthismarketwillreach20.4billionyuan.Inaddition,the14thFYPperiodisexpectedtocomplete350millionsquaremetersofenergy-savingrenovationofexistingbuildings,whichwillalsocontributetotheannualaverageofRMB5.3billionofsalesforairsourceheatpumpheating.Thetwotogether,China'sairsourceheatpumpheatingmarketsizeisexpectedtoreachRMB25.7billionin2025,correspondingtoanaverageannualgrowthrateof35%.Thefast-growingexportmarketwillalsoboostthesalesofairsourceheatpumps.In2021,theexportvalueofairsourceheatpumpproductsreachedRMB4.5billion,up100.7%year-on-year.ItcanbeseenthatexportsdirectlybenefitfromtherapidlygrowingmarketdemandinEuropeandtheUnitedStates.Inthoseregions,therapidgrowthofairsourceheatpumpsfordomesticandcommercialapplicationswilllikelycontinue.WebelieveChina’sexportofairsourceheatpumpscanalsomaintainacompoundannualgrowthrateofmorethan40%overthenextfewyears.Exhibit46:PotentialexpansionpathofairsourceheatpumpheatingproductsinSouthernChinaSource:RMIStep1:Providehigh-endcustomerswithsmallnumberofbifunctionalair-sourceheatpumpproductswithexpensiveprice,highquallity,andpremlumserviceStep2:Providemiddle-classcustomerswithmedlumnumberofbifunctionalair-sourceheatpumpproductswithmoderatepriceMarketfeedbackdrivesimprovementofdesign,productionandservice,andestablishmentofbrandCustomerbaseincreased,productawarenessimproved,andcostreducedStep3:Providemassmarketwithlargenumberofbifunctionalair-sourceheatpumpproductswithaffordableprice,transformingwinterheatingdevicesfromunnecessitiestonecessitiesExhibit47:Chinaairsourceheatpumpheatingmarketsizeprojections,2021-20250.47Source:MioTechResearch0.0%10.0%20.0%30.0%40.0%05101520253020212022E2023E2024E2025EMarketSizeRMBBillionYear-on-yearGrowth%TheGreenLeapThedemandside–sectoraluseofenergy88Theuseofvirtualpowerplants(VPP)isoneoftheimportantmeanstorealizecleanenergyaggregation,forminteractionsbetweenpowersupplyanddemand,andpromotepowermarketreform.VariableRenewableEnergy(VRE)powergenerationisvariating,intermittentandfluctuating.InthenewgenerationofpowersystemwithahighproportionofVREcapacity,thegridsystemitselfcannoteffectivelyhandlethereal-timeloadbalancewithlimitedflexibilityresourcesavailableonthepowergenerationside.Therefore,itisnecessarytotapthepotentialofflexibleresourcesonthedemandside,andvirtualpowerplantscameintoplay.Comparedwithtraditionaldemand-sidemanagement,virtualpowerplantsrealizethetwo-wayinteractionbetweenuserandgridmeasurement,andenableintelligentschedulingaccordingtogridsupplysidesignalsandelectricityspotpricesignals.Thesystemisprogrammedforspontaneousautomaticloadcontrol,andpromotingtheinteractiveoperationsofpowergeneration,griddistribution,demandloadandstoragedeviceinthenewpowersystem.ZhejiangSanhuaIntelligentControlsCo.,Ltd(002050.SZ)Thecompanyisagloballeaderintheproductionanddevelopmentofcontrolcomponentsandpartsforairconditioners,heatpumpsandappliances,andhasestablishedaleadingpositionintheindustryaftermorethan30yearsofdevelopment.Itsmainproducts,four-wayreversingvalvesandelectronicexpansionvalves,arethecorecomponentsofheatpumpsystemsandrankfirstintheworldintermsofmarketshare.In2021,thecompanyachievedoperatingrevenueofRMB16billionandnetprofitofRMB1.68billion.ShanghaiHanbellPreciseMachineryCoLtd(002158.SZ)Thecompanyismainlyengagedintheresearchanddevelopment,productionandsalesofscrewcompressorapplicationtechnologyandafter-salesserviceforcommercialcentralairconditioningcompressors,heatpumpcompressorsandairpressureproducts.Inrecentyears,thecompanyhasexpandeditsbusinesstothevacuumcompressorfield,whichiswidelyusedinthePVcandsemiconductorindustries.CompanyImplicationsVirtuePowerPlantandV2GaccelerateinapplicationExhibit48:supply-sideanddemand-sideflexibilityresourcesinvirtualpowerplantsSource：ABBTheGreenLeapThedemandside–sectoraluseofenergy89TheessenceofVPPservesasthecentralcontrolofaregionalpowergrid.Atoneendofthissystem,theVPPcombinesthedistributedcleanpowergenerationresources,controllableloadsandenergystoragesystemstobecomea"specialpowerplant",therebyachievingeffectivepowersupplycoordinationandregulationsimilartoconventionalpowerplants.Attheotherend,theVPPreducesorshiftstheelectricityloadforacertainperiodoftime,withouttheneedforuserstodisconnectthepowersupply.TherealizationofVPPisinseparablefromtheapplicationofadvancedcommunicationtechnology,artificialintelligence,edgecomputing,blockchainandotheremergingtechnologies.VPPsareexpectedtofurtherpromoteelectricitymarketreformasdistributedpowergeneration,powergridoperations,energyserviceproviders,andenduserscanparticipateinelectricitymarkettransactionsandoperatorsandusersinalllinkshavetheopportunitytogainrevenue.Thevirtualpowerplant,asasingleentity,participatesinpowermarkettransactionsandassistsintheoperationalsafetyofthepowersystem,whileprovidingauxiliaryservicessuchaspeakshavingandvalleyfilling,frequencyregulationandemergencycontrol.Theprofitsearnedbythewholevirtualpowerplantarethendistributedaccordingtothecontributionofvariousinternalresourceadjustments.Fromthismeans,scattereddemandsideresourcesoftypicallysmallcapacitycanobtainactualeconomicbenefitsfromtheelectricitymarket.Forexample,whenelectricityconsumptionistightinsomeareas,thechargingmodeofEVsinsurroundingbuildingscanbechangedfromfastchargingtoslowchargingthroughAIalgorithmschedulingandremotecontrol;thetemperatureofairconditionerscanbeadjustedwithoutaffectinghumancomfort;theoperationmodeofelevatorscanbeadjustedwithoutaffectingbuildingsafety;theenergystorageequipment,andheatingandairconditioningunitsinbuildingscanbeadjusted,sothatidleelectricitycanbepooledthroughaVPP,therebyalleviatingtheshortageofelectricitytensioninsomeareas.Thebuildingsthatprovidetheelectricityarecompensatedintheformofsellingelectricity.TheeconomicsofthevirtuepowerplantTheStateGridoncecalculatedthatinordertomeetsthe5%peakloaddemandinitsoperatingarea,theinvestmentinbuildingnewthermalpowerplantsandsupportinggridsystemisaboutRMB400billion;whileinthecaseofVPP,thecapitalexpenditurecanbereducedtoRMB40billiontoRMB57billionforitssetup,operationandincentivecost.ThisshowstheeconomicbenefitsofVPP.Ontheotherhand,resourcesthatareavailableforVPPoperationareinaperiodofrapidexpansion.Thetotalinstalledcapacityofdistributedpowergenerationisexpectedtoreach270GWbytheendofthe14thFYP.Ifthesescatteredresourcescanbeeffectivelyaggregated,thecapacityisequivalenttonewconstructionof270powerplantsofmegawattcapacity.Inaddition,adjustableloadresourcesintheindustrial,buildingandtransportationsectorshavegreatpotentialaswell.Takingelectricalvehiclesasanexample,bytheendof2021,thenumberofEVsinChinareached6.4millionunits,whichisequivalenttoabout400GWhofcapacityifcalculatedatanaverageof60kWhpervehicle.Forcomparison,weexpectthetotalcapacityofenergystorageinChinatoreach66GWhin2025.Guidingpolicieshaverecentlylandedoneafteranothertopromotethedevelopmentofvirtualpowerplants.TheGreenLeapThedemandside–sectoraluseofenergy90China'sVPPindustryislookingtoextendbeyondthedemonstrationstagewithincreasinglymaturepractices.Inrecentyears,StateGridandChinaSouthernPowerGridhavesuccessivelyexploredtheestablishmentofseveralVPPdemonstrationprojectsinJiangsu,Zhejiang,Hebei,Shanghai,Guangzhou,Shenzhen,andelsewhere,andachievedgoodeconomicandemissionreductionbenefits.TakingtheStateGrid“NorthernHebeiVPP”pilotprojectasanexample,in2020,thesummerairconditioningloadoftheNorthHebeiPowerGridwasover6GW,ofwhich10%respondedinrealtimethroughtheVPP,equivalenttoa600MW-capacitytraditionalpowerplant.Inaddition,theregenerativeelectricheatingloadrespondsinrealtimethroughtheVPP,whichgenerated720MWhofcleanenergyandreducedcarbonemissionsby636,500tons.ItcanbeseenthattheoperationmodeandtechnologyofaVPPisbecomingmoremature.ItisexpectedthatcommercializationofVPPwillacceleratealongwiththepolicy-drivenandwidespreadaccessofdistributedenergytothegrid.Exhibit49:NationallevelpoliciesrelatedtovirtualpowerplantsDateMinistryPolicyContentsrelatedtoVPPDec-21NationalEnergyAgencyRegulationsontheAdministra-tionofIntegrationandOperationofPowerGenera-tion,MeasuresfortheAdministrationofElectricityAuxiliaryServicesNewtechnicalguidanceandmanage-mentrequirementsareaddedforrenewableenergy,newenergystorage,demand-sideflexibility,etc.,soastoadapttothecharacteristicsofthenewpowersystemwithinteractionsbetweensource,network,loadandstorage.HighlightsofEnergyRegulato-ryWorkin2022GuidingOpinionsonAccelerat-ingtheConstructionofaNationalUnifiedElectricityMarketSystemOpinionsonImprovingInstitutionalMechanismsandPolicyMeasuresforGreenandLow-carbonEnergyTransitionEstablishthesharingmechanismofauxiliaryserviceswiththeparticipa-tionofusers,andpromotetheparticipationofhighenergy-carryingindustrialloads,commercialandindustrialadjustableloads,newenergystorage,EVchargingnetworks,VPP,etc.inprovidingauxiliaryservices.Stronglyencouragetheinvestmentandconstructionofpumpedstorage,energystorage,VPPandotherflexibleresources.Supportuser-sideenergystorage,electricvehiclechargingfacilities,distributedpowergenerationandotheruser-sideadjustableresources,aswellasloadaggregators,VPPoperators,integratedenergyserviceproviders,etc.toparticipateinpowermarkettransactionsandsystemoperationregulation.NationalEnergyAgencyJan-22NationalDevelopmentandReformCommission,NationalEnergyAgencyNationalDevelopmentandReformCommission,NationalEnergyAgencyJan-22Jan-22Source:MioTechResearchTheGreenLeapThedemandside–sectoraluseofenergy91Exhibit50:SummaryofVPPdemonstrationprojectsCompanyProjectNameProjectDateProjectHighlightsChinaSouthernPowerGridStateGridStateGridShenzhenintegratedvirtualpowerplantplatformZhejiangPinghuCountyvirtualpowerplantWuhanvirtualpowerplantNov-21Jun-21Jun-21StateGridShanghaivirtualpowerplantMay-21TheplatformisdeployedinthedispatchingsystemofChinaSouthernPowerGrid(CSPG),andcanbedispatcheddirectlyatboththeCSPGandprovinciallevels.Thebiggesthighlightoftheplatformisthequasi-real-timecontrolfunctionoftheplatform.Aftertheload-sideresourcereceivestheemergencyregulationdemanddispatchedbythesystem,theloadpowerwillbeloweredtothetargetvaluewithin10minutes.TheVPPdemonstrationachievedpeakshavingof20to30MW.Itloweredthepeakloadby700MWintheregion,equivalenttoRMB1.28billioninvestmentingridinfrastructure,andcarbonemissionreductionof3milliontons.Thedemonstrationlastedonehourandgenerat-ed150,000kWhofelectricity.Theaccumulativeadjustedgridloadwas562MW,reducingcarbonemissionsbyabout336tons.Shanghaihasmaintainedavirtualpowerplantof1millionkWh,whichis6%oftheannualinstalledcapacity,andwillgraduallyincreasethevirtualpowerplantcapacityinthefuture.Source:Publicinformation,MioTechResearch0.47StateGridZhejiangLishuigreenenergy"virtualpowerplant"May-21Thedemonstrationprojectaccessedandcontrolled19adjustableresourcesin11categories,includingregenerativeelectricheating,adjustableindustrialandcommercial,smartbuildings,smarthomes,energystorage,electricvehiclechargingstations,anddistributedphotovoltaicsinrealtime,withacapacityofabout160MW,coveringthethreecitiesofZhangjiakou,QinhuangdaoandLangfang.ItisestimatedthattheVPPdemonstrationincreasedrenewableenergyconsumptionby10.8MWh,savedRMB1.3millionindemand-sideresponsecost,andreducedcoalconsumptionby94tons.StateGridStateGridNorthChinaStateGridintegratedvirtualpowerplantHebeiProvincialStateGridJibeivirtualpowerplantDec-20Dec-19Thevirtualpowerplantaggregated154MWofadjustableresourcestoparticipateintheNorthChinaelectricpowerauxiliaryservicemarket.TheGreenLeapThedemandside–sectoraluseofenergy921.ElectricitytradingTheintegratedenergyserviceprovideractsastradingbrokers,poolingindividualcontrollableloadresourcesandparticipatingasasingleentityintheelectricitytradingmarket.Theintegratedenergyserviceprovidercanchargeservicefeetothecontrollableresourcesforparticipatingintheelectricitymarkettransactions,and/orcollectdemandflexibilityservicechargefromthegridoperator.2.GridauxiliaryservicesIntegratedenergyserviceproviderscanprovidepeak-shavingandvalley-fillingservicesandtemporaryelectricitycapacitybyadjustingvariouscontrollableloads.Theagreementtoprovideauxiliaryservicesandobtaincorrespondingcompensationisobtainedbybiddingaccordingtothequantityvalueandresponsetimerequirements.3.Demand-sideresponseoptimizationIntegratedenergyserviceproviderscanprovideintelligentpowerconsumptionsolutionsforenduserstooptimizeproductionprocessesorconsumptionandachieveenergysaving.Forexample,theycanactasanagenttopurchaseelectricityforcontrollableloads,forecastpricefluctuationsintheelectricitymarket,andmakedecisionsontheelectricityconsumptionbehaviorofcontrollableloads,andguidecustomerstooptimizetheirresponsebehaviorandachievethegoalofreducingelectricitybillsbyminimizingtheenergycostofcontrollableloads.SpearheadapplicationsIntegratedEnergyServicesTheintegratedenergyserviceproviderisoneofthemostimportantparticipantsinthevirtualpowerplantsystem.Itreceivesrevenuefromparticipatinginelectricitytrading,auxiliaryservicesmarketanddemand-sideresponse,andhelpstoenhancetheunifiedcoordinationandcontrolofthevirtualpowerplant.NARITechnologyCo.,Ltd.(600406.SH)Foundedin2001,Thecompanyisprincipallyengagedinthedevelopment,productionandsalesofhardwareandsoftwareproductsrelatedtothepowerindustry.Thecompanyisalsoengagedintheprovisionofrelatedsystemintegrationservices.Thecompanyhasformedacompletetechnologyandproductsystemonvirtualpowerplants,whichcansupportavarietyofnewbusinessmodelsinthemarket.StateGridInformation&CommunicationCoLtd.(600131.SH)TheCompany'sbusinessesincludecloudnetworkinfrastructure,cloudplatforms,cloudapplicationsandenterpriseoperationsupportservices.Thesoftwareincludespowermarketingsystemsandenterpriseportals.Thecompanyisaimingtobecometheleadingcloud-networkconvergencetechnologyproductproviderandoperationserviceprovider,andhasalreadylandedaVPPdemonstrationprojectinBinhaiNewArea,Tianjin,withaninstalledcapacityof75MWandanadjustableloadof36MW.ThecompanyplanstobuildlargerVPPsystemsinBeijing,Jiangsu,Shanghai,HunanandHubeiinthefuture.BeijingE-techstarCoLtd(300513.SZ)Thecompanyismainlyengagedintheprovisionofinformationtechnologyservicesforthepowergridcompanies.TheCompanyprovidessolutionsforintelligentcontrolcenters,aswellasthecomprehensivemonitoringandproductionprocessmanagementsolutionsinsmartgridrelatedfields.ThecompanyisactivelydevelopingnewVPPbusinessmodels,playingthreerolesinthemarketatthesametimeasaggregator,investorandoperatorandparticipatinginpowermarkettrading,energytransformationandcomplementaryoptimizationoperation.CompanyImplicationsTheGreenLeapThedemandside–sectoraluseofenergy93Previously,thecompanyparticipatedintheconstructionofStateGrid’s"JibeiVPPprojecto,andhasrichoperationalexperienceintheformulationofrulesforvirtualpowerplants,signingofuseragreements,installationandcommissioningofintelligentterminalsandmarketoperation.VehicletoGrid(V2G)andsmartchargingpilesWithpolicysupportandincreasingdemand,thechargingpilemarketisdevelopingrapidly.AnEVchargingsystemisanecessaryenergyreplenishmentfacility.WiththeincreasingpenetrationofEVsinrecentyears,thedemandforcharginghasincreasedsignificantly.Theinvestmentandconstructionofchargingpilesandpowerexchangestationsareexpectedtobecomeoneofthekeyareasofinfrastructuregrowthin2022.WiththematurityofV2Gtechnology,intelligenttwo-waychargingpilesbecomethefuturedirectionofdevelopment.Thetwo-wayelectricitychargingbetweenEVsandthepowergridisrealizedthroughchargingstations,sothatEVscanactasenergystoragesystemswhenneededandpowerthegridwiththeirstoredelectricalenergyinthebattery.V2GmakesitpossibleforEVstoparticipateintheauxiliaryservicemarketasadistributedmicro-powersource.Forgridoperators,EVscanparticipateinreal-timeregulationandpeakshavingofthegrid.V2Gresponsetimecanreachmillisecondlevel,muchfasterthanthetraditionalflexibleresource.Itcanimprovetheutilizationrateofchargingpileswhileprovidingusefulservicesforthepowergrid.Forexample,in2018theStateGridElectricVehicleCompanyselectedsixdemonstrationareaswithhightransformerloadsandanincreasingnumberofEVsandbuilt160smartchargingpiles.Throughoptimizedchargingcontrol,thecommunitiesreducedpeaknetloadbymorethan30%onaverage.Ithasincreasedthecapacityofdistributionsubstationstoacceptchargingpilesfour-fold.Forcarowners,duringthevalleyloadperiod,theycanusethesmartchargingpiletochargeatlowerelectricitycost.Duringthepeakloadperiod,EVscandeliverpowertothegrid,gainingincentivesforparticipatinginpeakshavingandvalleyfilling.Thelithium-ionbatteryinstalledonEVscanbefullychargedanddischargedabout3,200timesbeforeitisretired,andtheusercanalmostoffsetthebatterycostbyparticipatingintheelectricitytradingandauxiliaryservicemarket.Atpresent,pilotstudiesontwo-waysmartcharginghavebeencarriedout,andrelevantsupportpolicieshavebeenintroduced.InJune2019,ShanghaiincorporatedEVsintothedemandresponsesystemforthefirsttime,openingupcommercialopportunitiesforV2G.InApril2020,theNorthChinaPowerMarketofficiallyincludedV2Gchargingpileresourcesinthemarketsettlementofauxiliaryservicesforthefirsttime.InMay2021,NDRCissuedtheImplementationOpinionsonFurtherImprovingtheServiceGuaranteeCapabilityofChargingandSwitchingInfrastructure,promotingV2Gcollaborativeinnovationandpilotdemonstration.Astheinfrastructureforsmartchargingapplications,EVsandchargingpileshavereachedreasonablescale.ThenumberofEVsreached6.4millionbytheendof2021inChina,equivalenttoastoragecapacityofabout400GWh.AccordingtodatareleasedbytheChinaElectricVehicleChargingInfrastructurePromotionAlliance(EVCIPA),bytheendof2021,thenumberofchargingpilesnationwidereached2.6millionunits,ayear-on-yearincreaseof56%,ofwhich1.1millionunitswerepublicchargingpiles.TheGreenLeapThedemandside–sectoraluseofenergyQingdaoTGOODElectricCo.,Ltd.（300001.SZ）Establishedin2004,thecompanyismainlyengagedinthreemajorfields:powerequipmentmanufacturing,vehiclechargingstationsandnewenergymicro-grid.ThecompanyisinvolvedinthemanufactureandsaleofEVchargingequipment,theconstructionandoperationofnewenergyvehicle(NEV)chargingstations,financeleasingandsolidheatstoragebusinesses.Throughitssubsidiary,thecompanyhasdevelopedthefirstV2GprojectinShanghai.XJElectricCoLtd(000400.SZ)Establishedin1993,itisaleadingenterpriseinChina'selectricpowerequipmentindustry.Atpresent,thecompanyhasproprietary800Vhigh-voltagechargingandasetofV2Gcoretechnologies.ItsV2GproductshavebeendemonstratedandappliedinTongliIntegratedEnergyDemonstrationStationinJiangsu,andtheHangzhouAsianGamesVillage.CompanyImplications94TheGreenLeapThedemandside–sectoraluseofenergyGICAuthorsSharmaineOhRuiWenHeadofChinaEquitiesTrangChuMinhVicePresidentCorporateAffairs&CommunicationsFayWuGlobalHeadofResearchfay.wu@miotech.comJiayePanSeniorAnalystjiaye.pan@miotech.comMioTechAuthorsJasonTuCEOjt@miotech.comJackLinPresidentjack@miotech.comBusinessContactResearchWebsite:www.miotech.com/en-US/researchLinkedln:www.linkedin.com/company/miotechFindMoreHongKong20/F,TheChelsea,69JervoisStreet,SheungWan,HongKongSingaporeTheWorkProjectBugis,600NorthBridgeRd,ParkviewSquare,#10-01,Singapore188778Shanghai200120,Room1402/1405,ShanghaiCenterBuilding,No.501,YinchengMiddleRoad,PudongNewDistrict,ShanghaiBeijing100020,Room908,WestTower,ProsperCenter,No.5,GuanghuaRoad,ChaoyangDistrict,BeijingMioTechOfficesLocationsMioTechWechatMioTechLinkedIn
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