The acceleration of power marketization will activate value competition on the power sales side

China Energy Storage Network: Recently, with the release of the "Notice on Further Deepening the Market-Oriented Reform of Coal-Fired Power Generation On-Grid Electricity Prices" and the "Notice on Organizing Power Grid Enterprises to Act as Agents for Power Purchases" by the National Development and Reform Commission, and the "Measures for the Administration of Power Sales Companies" and other market-oriented reform documents on power sales business issued by the National Development and Reform Commission and the National Energy Administration, power sales companies have ushered in new development opportunities, but may also face more challenges.

The development of power sales companies began with the "Document No. 9" in 2015. The understanding of power sales business has evolved from the ignorant exploration in the early stage of power reform, to the "you can make money if you can pull the load" in some provinces and cities from 2016 to 2018, to the "gradual narrowing of price gaps and increasingly severe assessments" from 2019 to 2020. The rise in coal prices in 2021 and the "dual control" of energy have made the power sales business itself almost unprofitable, and a large number of power sales companies have "fallen into possible or actual losses."

The development situation from hot to cold has made us rethink the market positioning, business value, business model, and competition and cooperation model of power sales companies.

From the perspective of industry development, I believe that future competition in electricity sales may be a process of sifting through the sand: only after the industry's lively bubble bursts, truly valuable companies will emerge. Around 2000, the Internet ".com" bubble burst, and foreign Google, Amazon, Twitter, and domestic BAT had the opportunity to become the real king. The same is true for electricity sales. The real value competition has just begun in 2022.

The concept and types of electricity sales companies

In a broad sense, a power sales company refers to a company that has power sales business. For example, a photovoltaic enterprise mainly invests in photovoltaics. On the one hand, it sells the electricity generated by its own photovoltaic projects to users, and on the other hand, it acts as an agent for the sale of electricity to some customers. We believe that it is a company with power sales business; in a narrow sense, a power sales company refers to a company whose power sales business income is the company's main business income.

The obvious trend in recent years is that the narrow-sense electricity sales companies are decreasing, and a large number of electricity sales companies are turning to broad-sense electricity sales companies, that is, electricity sales exist as a business segment of the company, and the company's income is diversified. This is also related to the fierce competition in the electricity sales market and the reduction of profit opportunities in electricity trading. This diversification will bring more innovation and development opportunities to the electricity sales market.

Wholesale electricity sales company

Wholesale power sales companies mainly participate in power market transactions and make profits through long-term contracts and bulk power transactions in the spot market. They mainly include the following three types:

Power generation and sales company: A power sales company whose parent company is a power generation enterprise. Its role is to better help the power generation enterprise acquire customers and sell electricity, and obtain sufficient profits from power sales.

Grid-based power sales companies: Grid-based power sales companies are mainly market-oriented grid integrated energy companies. Grid agency power purchase is a semi-market behavior, which will gradually decrease and disappear in the future, and will only appear in some extreme market failure situations.

Technology-based wholesale power sales companies: power sales companies with strong technical trading capabilities that trade and make profits based on data analysis and prediction in the wholesale market. There are relatively few such power sales companies in the market, but after the spot market opens in the future, they will become buyers' agents, similar to fund companies investing in stocks. In the future, technology-based wholesale power sales companies will need to use more financial means, and even participate in futures and spot transactions such as coal and crude oil, to hedge the risk exposure of a single trading product in the form of an investment portfolio.

Of course, power sales companies of power generation systems can also become technology-based power sales companies, but I personally think that this is more difficult, which will be explained later.

Retail electricity sales company

Retail power sales companies are more of a broad category of power sales companies, that is, various energy service-related companies, of which power sales business may be just one sector. Such power sales companies rarely or do not directly participate in market competition on the wholesale side, and focus more on business expansion on the user side.

Technology-based retail power companies: Technology-based retail power companies mainly rely on data analysis and forecasting to help companies better manage their power consumption and loads. The most typical example is the load integrator.

Service-oriented power sales companies: Power sales companies that use lightweight services on the user side to help users manage their electricity and energy consumption, gain customer stickiness and traffic through services, and participate in power retail. For example, power sales companies that "sell electricity + optimize electricity charges".

Comprehensive energy-based power sales company: A diversified power sales company that aims to meet users' comprehensive energy needs and includes investment, services, and power sales. Many incremental distribution network companies are also exploring this direction.

Resource Determinism of Electricity Sales Companies

The genes that several types of electricity sales companies currently on the market carry when they are born largely determine their business direction and future business model.

For example, power sales companies of power generation companies are not very willing to actively develop large-scale markets. They generally only focus on top power users with annual electricity consumption of tens of millions or even hundreds of millions of kWh, and transfer the market below the top to buyer-type power sales companies. This is determined by two reasons. On the one hand, the marginal cost of customer development cannot be further reduced. That is, whether it is a user with an annual electricity consumption of 100 million or a user with a million, the cost required to sign a power sales contract is almost the same, so power sales companies of power generation companies are naturally willing to find large customers. On the other hand, it is the allocation of marketing resources. There are only so many direct sales personnel in total, so naturally they will look for large customers with high profits first. And their biggest competitive resource in the market is the power purchase cost advantage and transaction information advantage obtained by relying on power generation companies.

This is both their strength and their weakness: if your core competitive factors are not brought about by your own efforts, then the best option may be to "lean on a big tree for shade". Therefore, this type of power sales company is not good at using services to acquire customers, but relies on price advantages to attract top customers, and cooperates with service-oriented retail power sales companies to develop customers below the top.

Similarly, for technology-based wholesale power sales companies, their core resources are invested in transaction analysis teams, analysis software, big data, transaction capital pools, etc., so their marketing and customer service capabilities are naturally weak points, so they are more inclined to rely on technological advantages to gain price advantages and adopt the method of "direct sales to top customers + channel sales to other customers". As the competition in the power market becomes increasingly fierce and the level of marketization continues to improve, it is bound to promote the division of labor in the entire power sales chain to be more professional and detailed, and each link will adopt a collaborative approach.

Thinking about the pattern of electricity sales business

When the electricity reform just started, some power sales companies were eager to go: if the market for electricity, such a standard commodity, was liberalized, a giant "Electricity Taobao" would definitely emerge, connecting sellers and buyers, so the trading platform was very important, and the core of the trading platform was "data + transaction analysis".

As a result, some companies raised a large sum of money, on the one hand subsidizing customers to obtain data, and on the other hand forming a transaction analysis team to study various high-precision algorithms. However, five years later, the power market is not mature enough and the transaction rules are not transparent, resulting in insufficient training of algorithms and the inability of big data to play a role. The imagined power Taobao or "big data + transaction" scenario is far from happening. The reason for this is not only the slow pace of marketization, but also the fact that power sales companies should not understand the power sales business as "power as a standardized commodity, large-scale buying and selling behavior".

On the wholesale side, electricity trading includes various market contract trading forms such as forward contracts, medium- and long-term contracts, spot contracts, ancillary service contracts, transmission rights contracts, etc. Trading on the wholesale side is similar to contract trading of grain, such as various trading varieties of wheat.