Should the integrated energy service industry adopt a franchise model?

In 2010, the State Council issued Document No. 25, “Opinions on Accelerating the Implementation of Contract Energy Management and Promoting the Development of Energy-saving Service Industry”. In the same year, China Southern Power Grid established China Southern Power Grid Integrated Energy Co., Ltd. to explore new energy service models.

In 2013, the National Development and Reform Commission issued the Interim Measures for the Management of Distributed Generation, which encouraged enterprises, professional energy service companies and various types of power users, including individuals, to invest, build and operate distributed generation projects, and provided certain subsidies to users. This was the first time that the word "energy service" appeared in a national policy and was related to distributed generation.

Foreign governments and enterprises have long been researching and practicing integrated energy services. The EU has placed research on energy synergy optimization in a prominent position in its "Fifth Framework". For example, the DGTREN (distributed generation transport and energy) project considers the coordination of the comprehensive development of renewable energy and clean transportation.

In general, different countries, enterprises and experts around the world have given different interpretations of integrated energy services and systems, and their definitions vary greatly. Whether a clear definition of the integrated energy service system can be given is of great significance for supporting and guiding the rapid development of integrated energy services, promoting the application of integrated energy services in the energy industry, promoting energy structure adjustment and accelerating kinetic energy conversion.

As an emerging thing, integrated energy services are still in the development stage. On the one hand, the transformation and upgrading of the energy industry has put forward new requirements for integrated energy services, and on the other hand, the improvement of energy technology has also enabled the integrated energy system to support more functional applications. Therefore, the definition of integrated energy services should be given a directional and functional definition in a broad sense with a development perspective and in combination with the strategic needs of sustainable development of integrated energy.

The author believes that we need to first distinguish between traditional energy services and integrated energy services. Traditional energy services refer to "energy-saving services" in a general sense, and mostly adopt the contract energy management model to implement energy-saving transformation, replacement and promotion of energy-saving equipment for existing projects on the user side. Due to the emergence of distributed energy, the business scope of traditional energy services has been greatly broadened, and user-side combined heat and power (cold) and various renewable energy supply systems have been gradually established. Moreover, the various energy forms of distributed energy projects have different technical characteristics and technical maturity, and the business model is more flexible and diverse. The market potential, complexity of project development and financing amount are far higher than those of the traditional energy-saving industry.

Secondly, the reform of the power system is one of the important driving forces for the development of integrated energy services. Especially in the context of the reform of incremental power distribution and the continuous liberalization of the power sales market, the previous large-scale, multi-link and inefficient power supply situation has been broken, the distance between terminal energy users and power supply companies has been shortened, and the connection between them has become closer, which has promoted power companies to continuously extend into the field of integrated energy services.

Therefore, we try to give the following definition of integrated energy services: Integrated energy services refer to an integrated energy system that is user-side demand-oriented, has the characteristics of electricity, gas, and heat networks, and is based on distributed energy, with multiple energy complementarity and coordinated optimization. By fully integrating user-side resources, it provides users with basic services, operational services, and equipment and facility services for gas, electricity, heat, cold and other products within a certain area, meets all user energy efficiency needs, and meets comprehensive services with multiple objective constraints such as a beautiful environment, safety and reliability, and high-quality economy.

The significance of developing integrated energy services in China

The emergence of integrated energy services is driven by external social needs. Resource and environmental issues have become the common focus of the whole society. The key to solving this problem is energy conservation, emission reduction and low-carbon development, which has led to the whole society's attention to energy transformation. This social consensus and personalized and diversified user needs have given rise to a huge energy service market.

The emergence of integrated energy services is the result of the inherent driving force of technological innovation. The increasing maturity of clean energy power generation technology and new energy power generation technology, the high integration of digital information technology and energy Internet technology, and the deep combination of energy production and storage methods have further enhanced the interconnection between energies and the integration of energy and information, providing a solid technical foundation for integrated energy services.

Promoting the development of the integrated energy service industry will help reduce manufacturing costs and is of great significance to enhancing my country's international competitiveness.

my country's manufacturing industry consumes 55% of energy consumption, and energy costs have become the largest cost after labor and raw materials. The traditional energy supply system is relatively independent, with gas, heat and electricity companies fighting on their own. There is a lack of unified coordination and optimization in planning, construction and operation, and the energy chain is long.

Especially in the context of the shale gas revolution in the United States bringing about a significant drop in energy costs, and the positive tax reform policy significantly reducing corporate tax burdens and promoting the return of a large number of manufacturing industries, my country's adoption of an integrated energy service approach will undoubtedly effectively shorten the energy chain, reduce investment and operating costs, as well as energy and service costs, which will be conducive to promoting energy supply-side reforms and enhancing the international competitiveness of China's energy-related industries.

Development status of integrated energy service industry

Although the concept of integrated energy services in China was only proposed in recent years, the practice of integrated energy has existed for a long time. For example, the vertical integration formed by energy companies extending and expanding their upstream and downstream business areas in the industrial chain has the prototype and basic characteristics of integrated energy services.

However, the model with the real connotation of integrated energy services has just emerged and is still in its infancy. Especially after the power reform, enterprises mainly engaged in power generation, power sales, gas supply, energy-saving services, etc. have successively carried out integrated energy service business. Among them, for incremental distribution projects, most of them adopt the franchise model.

In specific practice, private energy companies such as Cree, ENN, Tellhow, and GCL have participated in the incremental distribution projects. Many incremental distribution projects such as Gui'an New Area, Zhengzhou Airport Economic Zone in Henan, Xuwei New Area in Lianyungang, Jiangsu, and Hechuan in Chongqing have adopted the franchise model for project implementation.

In addition to the power industry, in the gas and heat industry, represented by Beijing Gas Energy Development Co., Ltd., China Gas Holdings Co., Ltd., Hong Kong and China Energy, ENN Smart Energy Group and Beijing Energy Group, etc., they take advantage of the large amount of heavy assets in the natural gas and heat industry chain and the ability to supply overseas resources, combine their own qualifications, technology, capital, customers and offline service capabilities, and develop comprehensive energy services to increase the types of energy supply, broaden the scope of energy services, further enhance customer stickiness, improve the quality of service for corporate users, and form new service business profit growth points.

Through questionnaire surveys of China Gas, Hong Kong and China Energy, ENN Energy, Beijing Gas Energy, Huadian, Datang, CGN, China Southern Power Grid Integrated Energy Company, Zhengzhou Dongrun Electric Power and other enterprises, it was found that the main way for gas, heat and power supply enterprises to provide comprehensive energy services is through franchising:

(In terms of the operation mode of integrated energy service projects, nearly 90% of the projects adopt the franchise mode;

In terms of the way of obtaining franchise rights, 50% of the surveyed enterprises obtained them through bidding, and the other 50% obtained them through negotiation with the government;

In terms of the business areas where enterprises won the bid, nearly 70% of them carried out business activities in the industrial park, and achieved this through signing a franchise agreement with the industrial park management committee. This shows that the areas where comprehensive energy services are currently carried out through franchise are mainly concentrated in incremental areas such as industrial parks;