1、The Green LeapHow the Energy Transition is Transforming Chinas EconomyESG37456586265Overview:Chinas Commitments to Demand Side Carbon Emission ReductionThe Industrial Sector1.Recycling of energy-intensive products steel,aluminum,paper and plasticCase Company:Shanghai Chengtou Corporation,

2、a pioneer in urban environment protection Company Implications2.Advanced electrical equipment drives energy efficiency improvementElectric motorsTransformerVariable-frequency drive(VFD)3.Waste heat recovery technologies gain tractionCompany ImplicationsTable of ContentsExecutive Summary010237I.The s

3、upply side power generation and the electricity gridOverview:Variable Renewable Energy(VRE)Installations Maintain High GrowthVRE Integration Orders for Higher Grid Flexibility1.Flexibility Retrofits for thermal power plants Revisiting asset values2.Energy Storage System(ESS)Scales with Rising VRE Ca

4、pacityPumped storageElectrochemical Energy StorageCompany ImplicationsDecarbonized grid calls for broader application of energy IT1.Grid design and software solutions2.Smart management of power transmission and distribution3.Digitalized Electricity Market02089323235II.The demand side sect

5、oral use of energyThe Building Sector1.Prefabricated construction leads the trend of low-carbon constructionCompany Implications2.BIPV and energy-saving materials empower passive buildingsCompany implications3.Air source heat pumps-the key driver for space heating electrificationCompany implications

6、Virtue Power Plant and V2G accelerate in applicationSpearhead applications666772738183888892Executive SummaryOver the past few years,China has stepped up its climate action efforts to accelerate the transition of Chinas economy and energy mix towards zero carbon emissions.The carbon neutrality targe

7、t of 2060 is a policy target set by the Chinese government for 40 years from now,creating certainty and anchoring new investment opportunities for value investors seeking exposure to Chinas decarbonization transition.The carbon neutrality target signals a major shift is on the way in how energy is s

8、upplied and consumed.MioTech Research has completed a series of studies covering Chinas path to reaching a carbon emissions peak,and later,falling to a target of zero carbon emissions.Visions drawn from these studies show distinctive features;namely,decoupling energy consumption from economic develo

9、pment,continuous improvement in energy use efficiency,accelerated evolution of energy demand patterns,continuous optimization of energy supply structures,and rapid iteration of low-carbon energy technologies.On the energy supply side,the structure of primary energy demand will change dramatically,wi

10、th fossil fuel demand dropping by more than 90%and renewable energy becoming the mainstay of energy supply.Under a scenario of renewable energy becoming the dominant energy source,we expect several outcomes:traditional thermal power assets will confront flexibility retrofit,energy storage technology

11、 will be applied on a large scale,transmission infrastructure investment will be increased,and demand-side management and other measures will improve power system flexibility.Meanwhile,digitalization will greatly improve the overall efficiency of both production and consumption.On the demand side,se

12、veral factors will reshape resource and energy use,including increased efficiency in energy consumption,large-scale electrification of the industrial,building and transportation sectors.The circular economy will also reshape the industry,which decouples economic activity from the consumption of fini

13、te resources.In the industrial sector,the recycling and recovery rates of energy-intensive materials and the energy efficiency of general electrical equipment will be significantly improved,greatly reducing energy demand.Industrial waste heat recovery technologies are also beginning to pick up steam

14、 across industries.In the building sector,prefabricated construction will lead the decarbonization transition in building design and construction,and much room for progress remains.Heating and cooling of homes and offices with zero carbon emissions will be made possible by building-integrated photov

15、oltaics,advanced heat pump technologies and energy-efficient building materials.Along with progress in electrification,novel applications such as virtual power plants and vehicle-to-grid technology are gaining traction as contributors to a new flexible power system.MioTech Research conducts an exten

16、sive two-part assessment of Chinas ongoing transition toward a carbon emissions peak by 2030 and,eventually,Net Zero in 2060.The first part covers Chinas grid-side innovations with accelerating renewable transition,while the second examines the complementary energy demand side innovations,especially

17、 within the industrial and building sectors under the decarbonization trend.The study aims to reveal new trends of green investment,especially from the standpoint of 2022,and to explore the significant investment opportunities in the complex and changing macro environment in the coming years.01The G

18、reen LeapExecutive SummaryThe Green LeapThe supply side power generation and the electricity gridI.The supply side power generation and the electricity grid Overview:Variable Renewable Energy(VRE)Installations Main-tain High GrowthWind and solar power account for a rising share of Variable Renewable

19、 Energy(VRE).In 2021,the duo together took almost 13.5%share of Chinas electricity consumption,up from just 1.6%ten years ago.Remarkably,new VRE installations are largely market-driven,as the levelized cost of energy(LCOE)of onshore wind and PV is already substantially cheaper than coal and gas.Mass

20、ive financing for renewable technologies will further reduce production cost and improve efficiency.The country also announced revised targets as a part of the 14th FYP decarbonization policies,facilitating Chinas technological transition and steering the country towards its decarbonization goals.In

21、 2021,the installed capacity of wind and photovoltaic generation in China both exceeded 300 gigawatts(GW),accounting for one-fourth of the countrys total installed generation capacity.The National Energy Administration released data showing that in 2021,Chinas installed capacity of wind power surpas

22、sed the 300 GW mark,accounting for about 12.6%of the countrys total installed power supply.Wind power generation accounted for about 7.5%of total electricity consumption.Compared with 2020s data,both figures are up 0.3 and 1.3 percentage points,respectively.The newly-installed wind power capacity of

23、 47.57 GW is about 27%of Chinas total new installed capacity.Chinas cumulative installed capacity for photovoltaic generation reached 306 GW in 2021,accounting for 12.8%of the total installed power supply and 4.5%of the total electricity consumption;newly-installed capacity is 53 GW,accounting for 3

24、1.1%of all newly-installed capacity in China.On the global scale,Chinas wind power installation has made up more than two-thirds of the global wind power capacity,with Chinas total equaling 1.4 times the total installed wind power capacity of the European Union and 2.6 times that of the United State

25、s.China has ranked first in the world for 12 consecutive years.The installed capacity of photovoltaic power generation has also ranked first in the world for seven consecutive years.In the first half of 2022,China installed 43.82 GW of wind and solar PV power generation,accounting for 64%of the coun

26、trys new installed capacity.02The Green LeapThe supply side power generation and the electricity grid03Technological advancements have made wind and photovoltaic power generation highly economical.The cost of VRE power generation is actually lower than that of coal-fired power plants.According to da

27、ta released by IRENA,during 2010-2019,Chinas onshore and offshore wind powers levelized cost of electricity(LCOE)dropped from RMB 0.91/kWh and RMB 1.15/kWh to about 0.32/kWh and 0.53/kWh,or 65%and 54%drop in percentage.During the same period,the photovoltaic LCOE has gone down to RMB 0.36/kWh,a redu

28、ction of more than 90%.Various renewable innovations are accelerating the growth and opportunities within the renewable economy in the past year.In the wind power industry,leading manufacturers such as Goldwind and Mingyang have transitioned to the larger unit specifications of 4MW and 5MW units,low

29、ering its tender price.In the PV industry chain,players such as HJT and TOPCon technology have emerged.Compared with the current 22.8%conversion efficiency of PERC(passive emitter and rear cells),the finished products of the two technologies are able to reach 24%,while the conversion efficiency coul

30、d reach as high as 27%theoretically.According to the industry forecast,the LCOE of onshore wind will further decline during the 14th FYP period,which is expected to hit RMB 0.1,0.2 and 0.3 by 2025 in high,medium and low wind speed areas,respectively.At the same time,the LCOE for Solar PV is expected

31、 to drop to between RMB 0.25 and 0.38 by 2025.The subsidizing policies for wind and PV are being retired and the feed-in tariff(FiT)scheme has been abolished.Since 2021,no national subsidies have been provided for developing centralized or commercial/industrial distributed PV projects.Effective from

32、 2022,no subsidies will be available for new household distributed PV projects.Wind power coincides with the PV timeline,with subsidies for newly-approved onshore projects phasing out in 2021 and newly-approved offshore power projects scheduled to phase out in 2022.Exhibit 1:Wind and photovoltaic po

33、wer cumulative installed capacity(GW)in China,2010-2021 Installed Capacity,GW35,00030,00025,00020,00015,0005,00020102011Source:China Electricity Council,MioTech Research2001510,00002,9584,6236,1427,6529,657WindSolar13,075262123411,5892,4864,218201614,7477,631201716,40013,042201818,42717,4

34、332019202020,91528,16520,42925,356202132,84830,65604Exhibit 2:Onshore wind power tariffs(in RMB)and national policies0.000.100.200.300.400.500.60Notice on the Requirements Relatingto the Management of Wind PowerConstruction in 2018(May,2018)Notice on Improving theFeed-in Tariff Policy for Wind Power

35、(May,2019)2018(Benchmark price*)Class II Resource AreaLetter on Matters Relating to theImplementation of the 2021 New EnergyFeed-in Tariff Policy(May,2019)2019(Guide price*)2021(Guide price*)0.40.340.290.340.380.470.390.430.520.450.490.57Class II Resource AreaClass III Resource AreaClass IV Resource

36、 AreaExhibit 3:Offshore wind power tariffs(in RMB)and national policies00.10.20.30.40.5Notice on the Adjustment of theBenchmark Feed-in Tariff forPhotovoltaic Power GenerationOnshore Wind Powe(Dec,2016)Notice on Improving theFeed-in Tariff Policy for Wind Power(May,2019)2018（Benchmark price）Price of

37、 class I Resource AreaSeveral Opinions on Promoting theHealthy Development of Non-WaterRenewable Energy Power Generation(Jan,2020)2019（Guide price)2021（Guide price）1 Benchmark price:Nationwide unified feed-in tariff set by the national government 2 Guide Price:ceiling price set by the national gover

38、nment,final tariff decided by lowest bidThe Green LeapThe supply side power generation and the electricity gridThe Green LeapThe supply side power generation and the electricity grid05Exhibit 4:Centralized PV tariffs(in RMB)and national policies*:Guide price policy expired in 2021,which means no mor

39、e subsidies were provided for centralized PV.0.000.200.400.600.802018Notice of Matters Relating toPhotovoltaic Power Generationin 2018(Jun,2018)Notice on Matters Relatingto the Feed-in Tariff Policyfor photovoltaic PowerGeneration in 2020(Apr,2020)Letter on Matters Relating tothe Implementation of t

40、he2021 New Energy Feed-inTariff Policy(Jun,2021)Notice on Issues Relating to the Improvement of the Feed-in Tariff Mechanism for Photovoltaic Power Generation(Apr,2019)（Benchmark price*）2019（Guide price*）20212021000（Guide price*）0.50.40.40.350.490.450.550.60.7Class I Resource AreaClass II Resource A

41、reaClass III Resource AreaExhibit 5:Distributed PV subsidies(in RMB)and national policiesSource:Public documents,MioTech Research0.000.050.100.150.200.250.300.3520021Notice of Matters Relatingto Photovoltaic PowerGeneration in2018（Jun,2018）Notice on Issues Relating to the Improvement of t

42、heFeed-in Tariff Mechanism for Photovoltaic PowerGeneration（Apr,2019）Notice on Matters Relating to the Feed-in Tariff Policy for Photovoltaic Power Generation in2020（Apr,2020）Letter on Matters Relating to the Implementation of the 2021 New Energy-Feed-in Tariff Polic(Jun,2021）0.050.080.0300.10.320.1

43、8Industrial and commercial distributed PVHousehold distributed PV06In 2021,the two major grid companies in China,namely the State Grid and China Southern Power Grid both rolled out their action plans for carbon peaking.Looking forward,both companies have set out ambitious targets on power mix change

44、 in line with the State Councils carbon peaking requirements by 2030.To further break down the commitments,provincial grids are also asked to set out provincial level numerical targets for grid transformation.The first of its kind report have been published by Zhejiang State Grid in May 2022.The ind

45、ustry side also anticipates accelerating domestic renewable installation.The National Energy Agency proposed that by 2025,the national PV and wind power will account for 16.5%of the total electricity consumption.China Photovoltaic Industry Association(CPIA)expects new PV installations to reach 70GW

46、per year during the 14th Five-Year Plan,and can be as high as 90GW per year.Wind power installations are expected to remain strong after record-setting growth driven by an installation rush for the phase-out of feed-in tariff scheme,with GWEC(Global Wind Energy Council)giving a forecast of about 40G

47、W per year from 2022 to 2025.Exhibit 6:The numerical targets on power mix change set out by Chinas two grid companies and provincial gridsSource:Public documents,MioTech Research25%25%38%1TW54GW42%65%30%60%61%35%250GWNot mentionedNot mentionedNot mentionedNot mentionedNot mentionedNot mentionedNot m

48、entioned1.2TWThe State Councils Action Plan for Carbon Dioxide Peaking Before 2030Grid CompaniesThe State GridChina Southern Power GridProvincial GridZhejiangShare of non-fossil fuel in total primary energy consumptionShare of non-fossil fuel electricity generation Electrification rate of total ener

49、gy consumptionWind and solar installation targetShare of non-fossil fuel installed capacityThe Green LeapThe supply side power generation and the electricity grid07Centralized and distributed renewable development are attached with equal importance.The National Energy Agency in December 2021 issued

50、an administrative notice to promote the second round of large wind and PV project development in West China,with the first round of about 100GW of large wind power PV already under way.On the other side,the national government is pushing for the coupling of distributed wind power and development wit

51、h rural revitalization action plans in South-eastern and Central-southern China.This move unlocks potential wind power of around 1000GW in the two regions.Distributed PV is expected to become the majority form of future development,reaching a 50%share in 2025.Exhibit 7:China Wind Power and PV Cumula

52、tive Installations(GW),2021-2025Source:CPIA,GWEC,MioTech ResearchCumulative Installations(GW)650550500450400350300250200600Wind PowerPV30042058630620212025EExhibit 8:National level policies on centralized and distributed renewable energy during the 14th FYP period(partial)Source:Public documents,Mio

53、Tech ResearchNational Energy Agency,Notice on Organizing the Second Batch of Large-scale Wind Power and Photovoltaic Projects Focusing on Deserts,Gobi and Desert AreasThe State Council,Opinions on Completely Accurately and Comprehensively Implementing the New Development Concept and Achieving Carbon

54、 NeutralizationPromoting the development of large-scale wind and solar energy stationsThe total installed capacity of wind power and PV will exceed 1200GW by 2030National Energy Agency,Notice on Matters Related to the Development and Construction of Wind Power and Photovoltaic Power Generation in 20

55、21National Peoples Congress,14th Five-Year Plan and 2030 Vision OutlineWind Power and PV will account for 16.5%of the total electricity consump-tion by 2025;initiate rural wind power and PV development schemeDevelopment of Nine large-scale energy bases integrating wind,solar and energy storage and f

56、ive offshore wind power basesDec-21Jan-21May-21Mar-21DatePolicyContent/ObjectiveThe Green LeapThe supply side power generation and the electricity grid08Wind energy and PV are both Variable Renewable Energy(VRE)sources,producing electricity intermittently that cannot easily be stored.Unlike stable g

57、enerating capacity from thermal power plants,VRE sources cannot be simply plugged into the grid.This creates two main challenges to the traditional power system when deployed at scale:VREs are weather(wind and sunlight conditions)dependent,which means the power generated varies from time to time,and

58、 even at the second level,is unpredictable.Directly connecting VRE to the grid will stress the load balance,voltage and frequency,affecting the overall stability of the grid.Second,VREs experience a typical power generation curve throughout the day.The peak period does not necessarily coincide with

59、periods of high power demand(Exhibit 8).In general,PV can achieve its maximum output between 9 am and 3 pm,resulting in the lowest net load(power demand subtracting the wind and PV power generation)on the grid during these hours.Between 6-9 am and 6-9 pm,however,the net load peaks as the power deman

60、d increases but the VRE generation power decreases.Maintaining the stable operation of the grid is crucial.And therefore,auxiliary services from power generators and grid operators need to be in place to respond quickly to the net load changes in a short period of time.VRE Integration Orders for Hig

61、her Grid FlexibilityGrid mode transformation becomes imperativeExhibit 9:Net load in California,the U.S.(Duck Curve)Californias duck curve is dipping deeper than everLowest net load day each year in CAISO,2015-2021Source:CAISO20GW1512AM12AM3AM3PM6AM6PM9AM9PM12PM0015202050Mornin

62、gdemand peakEveningdemand peakMidday solarsaturationThe Green LeapThe supply side power generation and the electricity grid09Sufficient flexibility is the key for the decarbonized grid system to rise to the challenges stemming from grid integration of VRE and maintaining system stability,while meeti

63、ng electricity demand.In general,the progress of the grids decarbonization transition,i.e.,the share of electricity generated from VRE,characterizes staged flexibility requirements.The grid then needs to take different actions.Six phases of VRE grid integration,as described by International Energy A

64、gency(IEA),define the grid system impacts and identify specific flexibility requirements(Exhibit 9),with the required actions and their associated costs becoming more prominent at each phase.The issue of lack of flexibility starts to become a significant and substantial challenge in the transition f

65、rom Phase 2 to Phase 3.The country is rapidly approaching the stage of insufficient flexibility while shares of VRE keep rising.Following the boom in wind and PV installations in recent years,their combined share in electricity generation has increased to nearly 10%,a value close to the IEA cut-off

66、for Phase 2 and Phase 3(Exhibit 10).During this period,the variability of net load will increase significantly and put the traditional electricity transmission and distribution mode under stress.Without sufficient flexibility,the grid would have to either suffer system level stability issues or curt

67、ail VRE from the grid.Exhibit 10:Six phases of VRE grid integrationSource：IEAKey transitionchallengesMonthly or seasonal surplus or deficit of VRE supplyGrowing amounts of VREsur-plus(day to weeks)The system experiences periods where VRE makes up almost all generation VRE generation determines the o

68、peration patternof the systemVRE has a minor to moderate impact on system operationVRE has no noticeable impact on the systemPhase 1:Phase 2:Phase 3:Phase 4:Phase 5:Phase 6:123456Need for seasonal storageLonger periods of energysurplus or deficitPower supply robustnessunder high VRE generationGreate

69、r variability of net loadand new power flow patternsMinor changes tooperating patternsExhibit 10 Stages of VRE grid integration by countrySource：IEASource:(IEA,2019)Phase 1:No relevant impact on the systemPhase 3:VRE determines the operation pattern of the systemPhase 2:Minor to moderate impact on s

70、ystem operationPhase 4:VRE makes up almost all generation in some periods%VRE of annual electricity generation010IndonesiaSingaporeSlovak RepublicNorwaySwitzerlandThailandCzech RepublicHungarySouth AfricaMexicoNew ZealandCanadaEstoniaIndiaFranceJapanPolandChinaUnited StatesBrazilFinlandTurkeyAustral

71、iaSwedenAustriaMoroccoNetheriandsItalyBelgiumGreeceUnited KingdomSpainPortugalGermanyIrelandLuxembourgDenmarkKorea20304050The Green LeapThe supply side power generation and the electricity grid10There are four main available sources of grid flexibility:operational flexibility of thermal power plants

72、,energy storage facilities,cross-border power trade,and demand-side flexibility.From the national power grid perspective,if the other three flexibility resources are lacking,cross-border power trading is not a meaningful solution at the system level.Demand-side flexibility requires in part behaviora

73、l changes of energy consumers and an electricity trading market that can assist in achieving such changes,both of which cannot be achieved overnight.Therefore,flexible operation of thermal power plants and energy storage facilities are currently the two most feasible and effective solutions to the g

74、rid transition challenge in the coming years.In the traditional power system,thermal power,particularly coal-fired power plants(CFPP)assume the central role of providing baseload capacity and following load changes on the demand side.With VRE taking a majority share of new installations since the 13

75、th Five-Year Plan,CFPP gradually weakened its position as the main provider of installed capacity,but is slowly transforming into the main source of electricity generation.Furthermore,CFPPs are leaning more towards following demand throughout the day,by running during the day and early evening.They

76、are operated in direct response to changing demand and VRE plant output.This transition trend is best reflected by changes in CFPPs full-load hours,a statistic used to measure power plants actual electricity output over a period of time.In Chinas traditional power system,the full-load hours of CFPP

77、are about 5,000 hours per year,which is the typical number for CFPPs providing baseload capacity and following load changes.According to the data published by the National Energy Agency,the annual average full load hours of CFPPs fall by 16%from 5,305 hours in 2011 to 4,448 hours in 2021.(Exhibit 11

78、).1.Flexibility Retrofits for thermal power plants Revisiting asset valuesShifting role of coal-fired power plantsExhibit 11:Average annual utilization hours of coal-fired power plants in China,2011-2021Source:China Electricity Council,MioTech Research5,5005,0004,5003,5004,0003,0002001420

79、002286423074211The Green LeapThe supply side power generation and the electricity grid11We believe Chinas decarbonized power system would give more priority to the VRE capacity,and CFPP shall serve the flexibility function to peak-shave and vall

80、ey-fill the power load profile,and maintain stable operation of the grid system.The predominant source of generation capacity will gradually shift from thermal power to hydro,PV and wind energy.The demand of flexible CFPP will be proportional to the newly installed VRE capacity.In August 2021,Nation

81、al Development and Reform Commission(NDRC)and NEA issued a regulatory notice on encouraging renewable developers to build or purchase peak shaving and valley filling capacity.Retrofitted flexible CFPP,pumped storage,and electrochemical energy storage are encouraged as flexible resources to undertake

82、 renewable energy integration.The Notice specifies that the renewable developers should at least deploy equivalent to 15%installed VRE capacity of peak shaving and valley filling capacity,with a storage duration of 4 hours.Grid-connection priority will be given to those deployed peaking shaving and

83、valley filling capacity at a ratio of 20%or more.Power auxiliary service market mechanisms as sub-markets of the electricity market have also been introduced at the national level to encourage the flexibility retrofitting of existing thermal power assets.Since 2019,major regional grids have graduall

84、y adopted peak-shaving auxiliary service trading markets.As an economic incentive mechanism,flexible thermal power participating in peak-shaving auxiliary services receives reimbursement proportional to the amount of generation actually replaced by renewable energy.On this basis,the country has star

85、ted rolling out the peak-shaving capacity trading market mechanism.The peak-shaving capacity market provides qualified thermal power plants with additional reimbursement proportional to their generation capacity.The higher the flexibility of the thermal plants output,the higher the cap on the offer.

86、The North China electricity market has officially launched a peak-shaving capacity market on November 1,2021,of which the VRE installed capacity share is second only to the Northwest region grid.Fujian and other provinces have also announced market operating rules,and the formal market launch is on

87、the arrow.In addition,the loosening of the floating range of coal-fired power electricity prices and the establishment of inter-provincial power spot trading market reflects the countrys reconsideration of the commercial value of flexible thermal power assets.The 13th FYP target for thermal power re

88、trofitting was 133 GW of combined heat and power(CHP)units and 82 GW of pure condensing units in North China.However,by the end of 2019,57.75 GW of coal power flexibility retrofitting had been completed,which is only one-fourth of the target retrofitting capacity.In analyzing the cause for this,we b

89、elieve that the unsecured return from the auxiliary service market is the main reason.Auxiliary service reimbursement is affected by the demand load and weather(hence VRE generation),coupled with illiquid market transactions.Therefore,thermal power plants did not receive economic incentives as forec

90、asted.According to statistics,only 76 transactions were made in the peak-peaking auxiliary service market in the entire North China Power Grid between January and April 2019.The cost of flexibility retrofitting is real,but there is a large uncertainty of return,which restricts thermal power plants i

91、n carrying out flexibility transformation.Retrofitting scale to reach 200 million kWCommercial attributes of flexible CFPPThe Green LeapThe supply side power generation and the electricity grid12The National Energy Agency sets the goal of flexibility retrofitting during the 14th FYP period to 200 GW

92、.In our view,strong flexibility demand from VRE grid integration and electricity market mechanisms provides sufficient driving forces for thermal power retrofitting development during the 14th FYP period,and the target of 200 GW is expected to be reached in full or even exceeded.The technical routes

93、 of CFPP retrofitting can be divided into two categories in general.The first category is the retrofitting of pure condensing units(power generation only without heat supply).For pure condensing units,the problem with flexibility retrofitting is how to maintain stable combustion at low load.Flexible

94、 units involved in peak-shaving service need to have the ability to adjust the load quickly and operate continuously at low loads,which deviates from the original design parameters of high load conditions.Flexibility retrofitting for such units requires process and equipment adjustments,of which the

95、 most critical equipment is the boiler.In order to meet the requirements of stable combustion in the new operating conditions,specific improvements need to be taken,including oxygen-rich combustion,plasma combustion stabilization technology and coal dust separator modification;on the other hand,envi

96、ronmental system emissions are also key factors limiting the low-load operation of the boiler.The denitrification system,the dust collector and the desulfurization system must be modified to ensure efficient operation under low-load conditions.The second category is the retrofitting of CHP units.Thi

97、s type of retrofitting generally does not involve changes to the boiler.The main issue here is the decoupling of electricity and heat generation,for which there are two means of retrofitting solutions.The first is turbine modification with the addition of desuperheater or low-pressure bypasses;howev

98、er,part of the energy is dissipated as heat and wasted.The other,more optimal solution includes heat storage tanks,with salt or hot water.The storage tanks allow excess energy to be stored and later distributed when needed.Market segments and leading playersExhibit 12:Retrofitting Technologies and t

99、heir cosSource:Public documents,MioTech ResearchRetrofitting technologyApplicable CFPP typeCostBoiler modificationPure condensingMediumHighCombined heat and powerHeat storage tank(hot water)Combine heat and powerLowTurbine modification,w/addition of desuperheater or low-pressure bypass Very highComb

100、ined heat and powerHeat storage tank(molten salt)The Green LeapThe supply side power generation and the electricity grid13We expect the proportion of pure condensing units and CHP units to be retrofitted in the 14th FYP and the 13th FYP to be approximately the same,totaling about 80 GW of pure conde

101、nsing units and about 120 GW of CHP units.Assuming CHP units adopt the hot water storage tank technology,overall market size for flexibility retrofitting during the 14th FYP period(2020-2025)can reach RMB 25 billion,which is over 200%increase from the 13th FYP period.At present,the flexibility retro

102、fitting segment mainly consists of players who were power generating equipment suppliers to CFPP power stations.The essence of flexibility retrofitting is the redesign and modification of combustion,power generation and heating equipment and processes,which requires close cooperation between CFPP op

103、erators and retrofitting solution providers to develop tailored design and implementation plans according to specific conditions.Power generating equipment suppliers have a natural advantage over third-party service providers because of their rich experience and know-how in both design and equipment

104、,and their close working relationships with thermal power operators.Major players include Xizi Clean Energy(002534.SZ),Shanghai Electric(601727.SH)and others.Transition power generators holding flexible thermal power assets will also benefit from the trend.Affected by the above-mentioned regulatory

105、notice,new VRE project investors will have to consider the cost of flexibility resources in the total investment cost of the project.According to our calculation on Capex and operational cost,CFPP flexibility retrofits cost about 0.14 RMB/kWh,substantially lower than the 0.55 RMB/kWh of electrochemi

106、cal energy storage and 0.18 RMB/kWh of pumped storage.Therefore,Flexible CFPP is the most economical flexible resource at the moment.Transition power companies with large CFPP units will have the edge in the cost competition of VRE investment project bidding.Listed domestic thermal power companies i

107、nclude Huaneng Power International(600011.SH,00902.HK),Huadian Power International(600027.SH,01071.HK),Shanghai Electric Power(600021.SH),etc.Power generating equipment:Xizi Clean Energy(002534.SZ)This company is currently the largest domestic research,development,design and manufacturing base for w

108、aste heat boilers,and has transformed from a single product manufacturer into a supplier of energy-saving and environmental protection equipment and a system solution provider of energy harvesting.The company previously provided boiler equipment for thermal power companies.In early November 2021,it

109、announced a decision to acquire 51%of Hepu Energy,a company mainly engaged in thermal power unit flexibility retrofitting.The companys flexibility retrofitting and energy storage business will use the new acquisition to grow faster and become a market leader.The company has developed demonstration p

110、rojects for molten salt energy storage.Power generating equipment:Shanghai Electric(601727.SH)Shanghai Electric is one of the largest power equipment manufacturing enterprise groups in China,focusing on three major fields:energy equipment,industrial equipment and integrated services.The company lead

111、s in traditional thermal and nuclear power equipment,and has a strong track record in wind power.It has the largest share of the offshore wind power market.The company has provided integrated service programs on CFPP retrofitting and upgrading based on demand for energy-saving,heat supply transforma

112、tion and flexibility retrofitting of power plants.Company implicationsThe Green LeapThe supply side power generation and the electricity grid14Transition power operator:Huaneng Power International(600011.SH,00902.HK)Huaneng Power International Power Co.,Ltd.develops,constructs,operates and manages l

113、arge-scale power plants throughout China,and is one of the largest listed power generation companies in China.During the 13th Five-Year Plan period,the companys renewable energy development has been rapid,reaching first place in its domestic market share of wind power and second place in photovoltai

114、c,based on power generation capacity.Transition power operator:Huadian Power International(600027.SH,01071.HK)Huadian Power International Power Co.,Ltd.is one of the largest integrated energy companies,whose main business is the construction and operation of power plants,including large and efficien

115、t coal-fired and gas-fired generating units and various renewable energy projects.The company is quickly transitioning into a renewable energy operator.The companys power generation assets are located in 14 provinces,autonomous regions and municipalities across China.Transition power operator:Shangh

116、ai Electric Power(600021.SH)Shanghai Electric Power Co.,Ltd.is a listed company under State Power Investment Group Co,and the main power provider for Shanghai City.The company is committed to the development of clean energy,renewable energy,and circular economy.The company holds coal-fired thermal p

117、ower assets with high efficiency parameters,wind power,solar power generation and distributed energy plants.2.Energy Storage System(ESS)Scales with Rising VRE CapacityEnergy storage is reaching a critical point of development.As more supportive policies for the energy storage industry are introduced

118、,investment in the energy storage sector will continue to flow,driving the commercialization of energy storage technologies and extending into more applications.From the sectoral micro perspective,photovoltaic and wind power are currently in the late growth and early mature phase of the business gro

119、wth cycle,which means large-scale development is commercially viable.On the other side,ESS started late and is currently limited to a small range of applications,which means it has not yet reached the“outbreak”period.With ongoing large-scale development of photovoltaic and wind power,ESS will soon r

120、each a key inflection point,allowing it to be used widely in commercial applications.Shifting role of coal-fired power plantsThe application of ESS in the power system is placed in three segments:the power generation side,the grid side and the demand side.On the power generation side,ESS mainly play

121、s the role of stabilizing the output power of VRE supply and acting as a backup capacity of the grid On the grid side,ESS regulates power system frequency and improve the efficiency of transmission and distribution equipment On the demand side,ESS is a necessity for distributed VRE installations,and

122、 electricity consumers can take full advantage of peak and valley electricity price difference with ESS installed.A rising proportion of VRE in the energy supply will give rise to ESS applications in every segment of the power system,due to its role in meeting the requirements of balancing power sup

123、ply and demand,thereby stabilizing grid operation.The Green LeapThe supply side power generation and the electricity grid15Policy implementation on the groundAs an important part of Chinas strategic emerging industries,ESS has received continuous attention from the state in recent years.Policies are

124、 rolled out to ensure sustainable development of the energy storage industry.In March 2016,the energy storage industry was officially listed in the national development plan.In September 2017,NRDC,MoF,Ministry of Science and Technology,Ministry of Industry and Information Technology and National Ene

125、rgy Agency launched Guidance on Promoting the Development of Energy Storage Technology and Industry,putting forward the development goals for the next 10 years,which aims to bring the ESS industry from the early stage of development into the large-scale development stage.Since 2020,national and loca

126、l governments have continued to promulgate more specific guidance and implementation plans summarized in Exhibit 16).Overall,there are three positive signals at the policy level:First is the strong support for technology R&D and industry chain enterprises.The key to the rapid formation of the scale

127、effect lies in performance improvements and cost reduction,and the vast majority of the technical route of energy storage is in the technical embryonic stage.For this,policy support is particularly important.Secondly,policies set out proportional allocation requirements of energy storage capacity fo

128、r VRE installations.This provides a guaranteed domestic demand for larger-scale energy storage.Finally,further exploration of electricity market reform is encouraged,which should improve the economic feasibility of ESS on the revenue side.Exhibit 13:Relevant national and local policies for energy st

129、orage(partial)DepartmentPolicyPublish dateNational level policies(partial)ContentNational Energy AgencyGuiding Opinions on Energy Work in 2020Strengthen support for energy storage industry,and study and implement policies to promote the development of energy storage technologyJun-20National Develop-

130、ment and Reform CommissionNotice on Further Improvement of Time-of-use TariffRequiring the time-of-use electricity price difference to be no less than 4:1.Jul-21National Develop-ment and Reform Commission,National Energy AgencyNotice on Key Works in 2021Widen time-of-use price differences,and implem

131、ent these on both generation and demand sides of the electricity system.Dec-20National Develop-ment and Reform Commission,National Energy AgencyGuiding Opinions on Accelerating the Development of Novel Energy Storage SystemBy 2025,realizing the transformation of novel energy storage industry from th

132、e initial stage of commercialization to large-scale development,with an installed capacity of more than 30GW.By 2030,the target is to achieve full market-driven development of the energy storage industry.Jul-21The Green LeapThe supply side power generation and the electricity gridDepartmentPolicyPub

133、lish dateProvincial and local level policies(partial)ContentQinghai Provincial Development and Reform CommissionNotice on the Issuance of Certain Measures to Support the Development of Energy Storage IndustryIn principle,the energy storage capacity of newly built renewable energy projects should not

134、 be less than 10%of the installed capacity of the project,and the duration length of energy storage should be more than 2 hours.Jan-21Datong Municipal Peoples GovernmentImplementation Opinions of Datong City on Supporting and Promoting the High-Quality Develop-ment of Energy Storage IndustryEnergy s

135、torage industry reaches about RMB 10 billion and becomes one of the pillar industries in Datong.Jan-21Ningxia Provincial Development and Reform CommissionGuidance on Accelerating the Healthy and Orderly Development of Energy Storage in the Autono-mous RegionEnsuring capacity of energy storage facili

136、ties to be no less than 10%of the installed capacity of new energy,and the duration length of energy storage is more than 2 hoursJan-21Source:National Energy Administration,Development and Reform Commission,local government websites,MioTech Research Strong growth in both global and domestic marketsA

137、ccording to statistics from the China Energy Storage Committee(CNESA)of the China Energy Research Association(CERA),the cumulative global installed capacity of energy storage grew steadily from 2016 to 2020,with growth rates remaining at 2%-3.5%.By the end of 2021,the global installed capacity of en

138、ergy storage projects in operation reached 209 GW.Chinas energy storage installation maintained a higher growth rate,with a CAGR of 10%from 2016-2020.According to CNESA statistics,the cumulative installed capacity of energy storage in China should reach 46.1 GW by 2021,up 30%from 2020s 35.6 GW.From

139、the perspective of industry development,the current energy storage industry is represented by pumped storage and electrochemical energy storage.Pumped storage is the most mature technology with highest installation across the globe and in China.By the end of 2020,the share of pumped storage in the g

140、lobal energy storage capacity was 90.3%;electrochemical storage represented 7.5%with 14.2 GW installation.The share structure of Chinas energy storage industry is broadly similar to the global structure;however,electrochemical energy storage accounted for 9.2%of the share in 2020,corresponding to an

141、 installed capacity of 3.3 GW,which was higher than the global average level.16The Green LeapThe supply side power generation and the electricity grid17In 2019,the NDRC clarified that grid-side energy storage cannot be included in the cost of electricity transmission and distribution prices,causing

142、ESS development to hit a trough.In 2020,the industry saw high growth due to cost reductions in ESS and the state grids increasing investment.The installation exceeded 1 GW in power rating and 2.3 GWh in energy capacity,or a 168%YoY growth.The cumulative installed capacity reached 26 GW with huge roo

143、m for development.Exhibit 14:Installed Energy Storage Capacity in China and Worldwide(GW),2017-2021Exhibit 15:Cumulative Installed Energy Storage by Technology Type in China(left)and Worldwide(right),2017-2020Source:CNESA,MioTech ResearchPumped StorageFly wheelElectrochemicalMolten saltCompressed ai

144、rPumped StorageFly wheelElectrochemicalMolten saltCompressed air80%2002085%90%95%100%80%2002085%90%95%100%Exhibit 16:Electrochemical energy storage new installations and cumulative installa-tions in China,in unit of GW and GWh,2014-2020Source:CNESA,MioTech Research2.5600%500%40

145、0%300%200%100%0%-100%2.01.51.00.50.020140.20.10.00.10.10.10.10.50.50.80.91.22.30.0205120%100%80%60%40%20%0%4321020140.40.20.20.50.70.30.81.41.62.42.64.70.82001820192020New installation in power rating(GW)New installation in energy capacity(GWh)YoY(%)Cumulative instal

146、lation in power rating(GW)Cumulative installation in energy capacity(GWh)YoY(%)Source:CNESA,MioTech Research00.0%20.0%16.0%30.0%24.0%12.0%8.0%4.0%20020202035404550Installation Capacity,china(GW)YoY change(%)200202027552002052100.0%1.0%2.0%3.0%4.

147、0%5.0%6.0%7.0%8.0%9.0%10.0%Installation Capacity,china(GW)YoY change(%)The Green LeapThe supply side power generation and the electricity grid18Pumped storagePumped storage is currently the most technologically mature and economically optimal ESS system,particularly suitable for large-scale developm

148、ent,and therefore accounts for the highest share of all energy storage types.Pumped storage works similar to that of a reverse hydropower plant.It requires two reservoirs,upper and lower.It consumes electricity in the trough to pump the water to the upper reservoir,and releases the water from the up

149、per reservoir at times of peak demand to generate electricity.The efficiency of pumped storage power plants is about 80-82%,i.e.,1 kWh of electricity consumption results in 0.8-0.82 kWh of electricity regeneration.Its lifespan is close to that of conventional hydropower plants,capable of operating f

150、or 80-100 years.The development pace of pumped storage is guided by the government.The National Energy Agencys Medium-and Long-term Development Plan for Pumped Storage(2021-2035)states that by 2025,the total scale of pumped storage shall exceed 62 GW;by 2030,the total scale will double the number ab

151、out 120 GW.Given the estimated average cost of pumped storage of RMB 5,516 per kilowatt,pumped storage investment will be about RMB 170 billion during the 14th FYP,and up to 500 billion by 2030.The pumped storage value chain includes equipment manufacturing,engineering design and construction,and po

152、wer plant operation.The upstream component is the equipment manufacturing industry,with core equipment including turbines,pumps,generators and transformers.The midstream component mainly consists of design institutes,engineering companies,and power plant operators.The downstream is mainly the auxili

153、ary service applications of pumped storage power plants in the grid system,including peak-shaving and valley-filling functions,and frequency modulation.Exhibit 18:Historical Installed Capacity and Forecast of Domestic Pumped Storage(GW)140.0120.0100.080.060.040.020.00.0200202025E2030EExhi

154、bit 17:Energy Storage Installations by Technology TypesSource:CNESA,MioTech ResearchPumped StorageFly wheelElectrochemicalMolten saltCompressed air90.90%6.90%1.70%0.20%0.20%The Green LeapThe supply side power generation and the electricity gridDongfang Electric(600875.SH)and Harbin Electric(1133.HK)

155、are the two large state-owned enterprises taking the predominant market share.Other private and foreign enterprises such as ZF Holdings(002266.SZ)and Toshiba Hydropower occupy a small percentage.The State Grid and China Southern Power Grid are the two main pumped storage power plant operators.As of

156、2020,State Grid has 28 pumped storage power plants in operation with an installed capacity of 23 GW,and 35 plants under construction with an installed capacity of 48 GW.Southern Power Grid has 6 plants in operation with 7 GW capacity and 5 under construction with 5 GW capacity.The design,engineering

157、 and installations are mainly undertaken by China Power Construction(601669.SH)and China Energy Construction(601868.SH).Exhibit 19:Pumped storage industry chainSource:Public information,Wind,MioTech ResearchTurbineGeneratorPlant designPeak shavingValley fillingFrequencymodulationEmergencybackupPhase

158、modulationEngineering and constructionPlant operationInstallation and testingGrid connectionPumpValveSpeedAirgovernorcompressorAuxiliaryFrequencyregulatorSubstationSurveillanceUpstream-EquipmentDownstream-Grid IntegrationMidstream-Engineering andOperationExhibit 20:Number and installed capacity of p

159、umped storage power plantsSource:State Grid,China Southern Power Grid,MioTech ResearchState GridChina Southern Power GridNumber of pumped storage power plantsInstalled capacity of pumped storage power plants in operation in operation 283523.41 GW 4.85 GW7.88 GW5.4 GW65under constructionunder constru

160、ction19The Green LeapThe supply side power generation and the electricity gridElectrochemical Energy StorageElectrochemical energy storage is being rapidly laid out.The high-power density and high-energy density property makes electrochemical energy storage the most versatile ESS type.Compared with

161、other technologies,electrochemical ESS has the advantages of good equipment mobility,fast response,and high cycle efficiency.In addition,cost reduction has shown an accelerated trend,which provides electrochemical energy storage with a promising commercialization future.According to Rocky Mountain I

162、nstitutes estimation,by 2050,electrochemical energy storage in China could reach 510 GW in installation capacity,far exceeding the scale of pumped storage of 140 GW by then,and become the most dominant form of electric energy storage.Electrochemical energy storage technologies mainly include lithium

163、 batteries,flow batteries,and sodium-sulfur batteries,among which lithium battery energy storage is the most mature technology at present.In the value composition of energy storage systems,the battery module and inverter are the most expensive parts.(1)The value of the battery module is the highest,

164、accounting for 60%of the value;the quality of the battery cells(energy density,cycle times,temperature adaptability and safety,etc.)directly affects the operation and efficiency of the entire energy storage system,and is therefore a key element in determining the return on investment of the energy s

165、torage system.Chart 21:Electrochemical energy storage applicationsSource:Pylon Technology,MioTech Research0.47GridPower GenerationPeak shavingTransmission and DistributionPower ConsumptionResidentialCommericalSchool,Hospital,Utilities,etcFrequency regulationVRE integrationAuxiliary serviceTransmissi

166、on delay preventionDeferring reinforcement investmentsTime-of-use tariff arbitrageElectricity supply quality improvement20The Green LeapThe supply side power generation and the electricity grid(2)The value of energy storage inverters ranks second,accounting for about 15%-20%of total value.Energy sto

167、rage inverters are similar to PV inverters,but the former has more diversified functions and is the key part for intelligent control capability in the energy storage system.Exhibit 22:Lithium-ion battery energy storage value chainSource:Pylon Technology,MioTech ResearchUpstreamRaw materialLFPNMCLMOL

168、TOGraphiteInverterBattery MgtGenerator SideGrid SideConsumer SideEnergy MgtCarbonBattery partsStorage SystemStorage PlantBatteryBatteryLithium-ionCathodeDiaphragmElectrolyteCase BodyAnodeBattery PackMidstreamDownstreamCompared with pumped energy storage,electrochemical energy storage is not limited

169、to geographical resource allocations and has a shorter construction timespan,which translates to a higher degree of flexibility.In addition,it has significant advantages in discharge duration,response time and comprehensive efficiency.It therefore has a wider range of application scenarios,and is fu

170、lly suitable for both power-based and energy-based applications.Overall,the development of electrochemical energy storage is still in its infancy,and it is likely that a variety of technologies will coexist in the future.Different technologies reflect their advantages in different applications.Exhib

171、it 23:Comparison of various types of energy storage technologiesTechnology TypeProject power scaleDischarge timeResponse timeOverall efficiencyNumber of cyclesPower-based applicationsEnergy-based applicationsTechnology maturityNot suitablePerfect fitMatureMatureEarly Commer-cializationMatureMaturePe

172、rfect fitSuitablePerfect fitPerfect Not suitablePerfect fitPerfect fitPerfect fit70-8015,000-25,00015,000-25,000300-5002,000-100,000+65-7590minminmsms50-85ms85-951-24h1-24hs-30minm-hm-hMore than 100MWDozens to hundreds of MWKW-tens of MWKW-tens of MWKW-Pumped storageCompressed Air Flywheel energy st

173、orageLead-acid batteriesLithium 21The Green LeapThe supply side power generation and the electricity gridBatteryFlow BatterySodium-sul-fur batteriesSuper Capacitor BatteryHydrogen Energy StorageSupercon-ducting Energy StorageEarly Commercial-izationEarly Commercial-izationDevelopment StageDevelopmen

174、t StageDevelopment StagePerfect fitPerfect fit5,000-15,000+10,000fitfitPerfect fitPerfect fitNot suitableNot suitablePerfect fitSuitablePerfectly fit10,0000+10,0000+2,000-6,000ms65-8575--50msmsmsm-hm-hs-ms-mNANANANAhundreds of MWKW-100 MW100KW-100 MWKW-hun-dreds of MWKW-tens of MWKW-GWTec

175、hnology TypeProject power scaleDischarge timeResponse timeOverall efficiencyNumber of cyclesPower-based applicationsEnergy-based applicationsTechnology maturitySource:CCID,MioTech ResearchAt present,the industry is generally most optimistic about lithium-ion battery technology.With good charging and

176、 discharging performances,fast response times and high energy densities,lithium-ion batteries have technical advantages in many applications and significant cost advantages due to the scaling effect from the electric vehicle application.By the end of 2019,the cumulative installation of lithium-ion b

177、atteries accounted for more than 80%of the various types of electrochemical energy storage that have been put into operation in China.We expect that lithium-ion batteries will still represent the mainstream of the future electrochemical energy storage in China.Despite concerns around lithium-ion bat

178、teries current safety and life cycle performance,further breakthroughs can be expected when the whole value chain starts to scale.In 2020,global new electrochemical energy storage installed capacity reached 10.7 GWh,an increase of 57.4%year-on-year.According to IEA,the global new installed capacity

179、of energy storage should reach 284 GWh in 2025,with a CAGR of 53%.By that time,new energy storage installations in Chinas market will reach 90 GWh,which represents 32%of the global installed capacity.Market prospect of ESS22The Green LeapThe supply side power generation and the electricity gridTaken

180、 together,the installed capacity of electrochemical storage in China is expected to reach 66.0 GWh in 2025,corresponding to a 5-year CAGR of 88.14%,according to our research.The average price for lithium-ion battery storage in 2020 was RMB 1.8/Wh.With scaling applications bringing the cost further d

181、own,we expect that by 2025,the average price of lithium-ion battery storage systems will fall to around RMB 1.2/Wh.The overall market size of electrochemical energy storage,led by lithium-ion batteries,will then reach RMB 250 billion during the 14th FYP period.Exhibit 24:Global energy storage new in

182、stallation forecast(unit:GWh)Global Energy Storage New Installed Capacity2021E51.387.5125.6187283.82022E2023E2024E2025ESource:IEA,BP,MioTech ResearchHouseholdCommercial and IndustrialPower Generator side Grid sideCommercial and Industrial Power Genera-tor side Grid side10.518.6Overseas Market(outsid

183、e of China)Chinas Market24.43244.814.215.22348.4106.72.16.912.519.421.43.37.210.512.321.31831.441.856.664.31.13.76.710.411.52.14.56.77.913.823The Green LeapThe supply side power generation and the electricity gridThe forecast assumes the following for relevant indicators:(1)In 2020,Chinas lithium-io

184、n battery energy storage cumulative installed capacity was 0.81 GW on the consumer side.Considering a daily discharge of 2 hours,and 350 days of operation per year,then the lithium storage user-side penetration rate was 0.04%in 2020.(2)Considering that cost reduction is driving up penetration rates,

185、we expect user-side penetration rates to reach 0.02%/0.03%/0.05%/0.08%/0.12%in 2021-2025.Consumer sideChart 25:Global energy storage new installations forecast(unit:GWh)0.4705003000204060801001202021E2022E2023E2024E2025EGlobal new installationsYoY change（%）Exhibit 26:China electrochemical

186、 energy storage market size forecast(unit:RMB bn)005006007008009002021EGenerator sideConsumer sideGrid side2022E2023E2024E2025E24The Green LeapThe supply side power generation and the electricity gridBased on the above assumptions,we can estimate the market size of electrochemical energy

187、storage in China in 2021-2025.The results are shown below.(1)On the grid side,Chinas energy storage involved in thermal power frequency regulation capacity is generally 0.5h,and 2h on other projects,so it is assumed that grid-side energy storage experiences a daily discharge of 1.5h,running 350 days

188、 per year.(2)Considering the cost reduction driving the penetration rate to further increase,we expect 2021-2025 grid-side penetration rates of 0.01%/0.02%/0.03%/0.055%/0.08%.Grid side(1)The PV installation forecast is taken from the China Photovoltaic Industry Association(CPIA),and the installed wi

189、nd power data is taken from the forecast data of Global Wind Energy Council(GWEC).(2)As the scale of energy storage continues to expand in the future,the penetration rate and capacity allocation steadily increases.Power generation sideTotal electricity consumption(10 kWh)Penetration rateEnergy stora

190、ge capacity(10 kWh)Grid side75,11078,86682,80982,80991,29791,2970.004%0.010%0.020%0.030%0.055%0.080%2.817.8916.5626.0850.2176.69Exhibit 27:2021-2025 Electrochemical energy storage market size forecastCommercial and industrial electricity consumption(10 kWh)Energy storage capacity(10 kWh)Cumulative i

191、nstalled capacity(GW)New Installed Capacity(GW)Storage hours(h)New installed capacity of energy storage(GWh)Penetration rateConsumer side2020E50,29752,8125,545258,22561,13664,1930.011%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.

192、601.401.743.575.678.052021E2022E2023E2024E2025E25The Green LeapThe supply side power generation and the electricity gridGrid sideCumulative installed capacity(GW)New Installed Capacity(GW)Storage hours(h)New installed capacity of energy storage(GWh)0.671.883.956.2211.9718.290.321.212.072.275.756.310

193、.401.823.103.418.639.471.51.51.51.51.51.5Consumer side(GWh)Grid side(GWh)0.601.401.743.575.678.050.401.823.103.418.639.47PV new installations(GW)Centralized PV shareCentralized PV new installations(GW)Wind power new installations(GW)Combined wind and centralized PV new installations(GW)Energy storag

194、e penetration rateCapacity allocation ratioInstalled energy storage on the power genera-tion side(GW)Storage hours(h)Installed energy storage on the power genera-tion side(GWh)Power generation side486070809010068%64%62%60%58%56%7%40%50%60%70%80%15%16%17%18%19%20%3338434852564930374042458268808894450

195、.894.386.839.5012.5316.161.809.6316.4024.7135.0848.4822.22.42.62.83Total26The Green LeapThe supply side power generation and the electricity gridSource:CPIA,GWEC,National Energy Agency,MioTech ResearchPower generation side(GWh)Total installed energy storage(GWh)Average price of lithium battery energ

196、y storage system(RMB/Wh)Electrochemical energy storage market size(RMB billion)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(RMB billion)Total1.Incentive policies are needed to further promote development of the industry.The

197、electrochemical energy storage industry is still in its infancy.Currently,the pricing mechanism of energy storage is not clear,and therefore project investment profitability is difficult to predict.The revenue mechanism of energy storage needs to be clarified and implemented,such as:the participatio

198、n of energy storage in the auxiliary service market,the establishment of pricing and trading policies and models,the improvement of payment compensation mechanisms,and the establishment of power retail market for energy storage applications in distributed energy generation.On the other hand,preferen

199、tial policies need to be adopted to support the early market,such as:extending the procurement support for energy storage projects,providing financial and tax incentives for energy storage projects.2.Rising upstream raw material cost hampers cost reduction trend.Benefiting from technological progres

200、s,the cost of electrochemical energy storage has continued to decrease in the past 10 years.But at the same time,energy storage is very sensitive to the cost of the core upstream material,including lithium,electrolyte,and nickel.The increase in upstream price will have a huge impact on the economic

201、feasibility of energy storage projects,which then investors are reluctant to build new energy storage projects.The bottlenecksPumped storage1.Dongfang Electric(600875.SH)The company is one of Chinas major power generation equipment providers.The companys business ranges from thermal,hydro,nuclear,wi

202、nd,PV and gas power plant equipment.In 2021,the companys renewable energy equipment revenue for the first time exceeds thermal power equipment.By the end of April 2021,the companys cumulative production of power generation equipment exceeded 600 GW,ranking first in the country,of which the market sh

203、are of thermal power,hydropower(pumped storage),and nuclear power is more than 40%.Company implications27The Green LeapThe supply side power generation and the electricity grid282.Inverter and energy storage system integrationThe company is a veteran leader in the PV and energy storage inverter mark

204、ets.The companys global shipments of three-phase/single-phase string inverters is ranked 6th/5th in the world,and the market share of household energy storage inverters is 15%,the top position globally.Goodway(688390.SH)The company focuses on the research and development,production,and sales of sola

205、r,wind and energy storage power products.Main products include photovoltaic inverters,wind power converters,energy storage systems,EV drive systems,and intelligent energy operation and maintenance services.In 2020 the companys PV inverter shipments was 35GW,or 19%of the global market share.Sungrow P

206、ower(300274.SZ)The company is a leading energy storage battery system provider,focusing on the development,production and sales of LFP battery cells,modules and energy storage battery systems.The companys own brand household energy storage products sales in 2019 accounted for about 8.5%of the total

207、global shipments,ranking third in the world.Pylon Technology(688063.SH)Electrochemical energy storage1.Lithium-ion Battery 2.China Power Construction(601669.SH)The company is a leading engineering enterprise in the global power plant development.With a strong technical background and rich engineerin

208、g experiences,the company owns about an 80%of share in the domestic pumped storage engineering markets.In 2020 the company won RMB 10 billion of pumped storage project contracts.The company is the worlds leading lithium-ion battery provider,focusing on the research,development,production and sales o

209、f battery system products for electrical vehicle and electrochemical energy storage applications.The companys revenue from sales of battery products for energy storage system revenue increased 219%YoY in 2020,accounting for 4%of total revenue,an increase of 2.6 pct.In the past two years the company

210、participated in a number of large-scale energy storage projects.CATL(300750.SZ)The Green LeapThe supply side power generation and the electricity grid29The digitalization of the power industry is not just about empowering the industry with data and information tools,but also about maximizing the pot

211、ential of power reform based on data and marketization.Digitalization of the power sector has not been widely noticed by the market due to the complexity of its systems and technologies,and the monopolizing nature of the industry.The power sector,due to its own need for a large amount of real-time p

212、ower generation and consumption data,has higher digitalization potential compared to traditional energy and manufacturing industries.The continued promotion of decarbonization and electricity market reform will also bring more application scenarios and market-oriented investment opportunities for th

213、e application of energy IT in the power system.Decarbonized grid calls for broader application of energy ITThe power grid is a network system that connects power producers and consumers for the purpose of transmitting electricity.The power grid includes three core aspects of the power system:power t

214、ransformation,power transmission and power distribution.At present,Chinas power system is in AC mode and relies on thermal power.In the context of decarbonization targets,the combined generation of wind power and PV generation rose to about 11%of total electricity consumption 2021,and this will furt

215、her increase over the coming years.VRE integration and electricity trading market call for digital transformation of the gridExhibit 28:Share of VRE in electricity generation in China,2015-2030ESource:China Electricity Council,MioTech Research20%22%24%16%12%8%4%9%16.5%22%4%0%201520202025E2030EThe Gr

216、een LeapThe supply side power generation and the electricity grid30 July 2021,NDRC issued the Notice on Further Improving the Time-of-use Tariff Mechanism,which aims to form an effective market incentive mechanism to stimulate the commodity properties of electricity.In 2021 September,Green Electrici

217、ty Trading Pilot Work Plan was officially approved.Green electricity generated from wind power and photovoltaic power plants are priced separately for online trading purposes.259 market entities in 17 provinces participated and traded 8,000 GWh of green electricity.According to China Electricity Cou

218、ncils forecast,green electricity trading will account for about half of the total amount of green electricity generation in the next five years.In November 2021,the State Grid issued the Inter-provincial Electricity Spot Trading Rules,marking the initiation of Chinas inter-provincial and inter-regio

219、nal electricity market,which allows large consumers and electricity sales companies to participate in trading.In January 2022,NDRC issued Guiding Opinion on Accelerating the Construction of a National Unified Electricity Market System,aiming at the initial completion of a national unified electricit

220、y market system by 2025.In the future,the electricity spot market,green electricity trading,auxiliary service trading market and other forms of electricity trading markets will exist at the same time.The timeliness,accuracy and effectiveness requirements for transaction data processing will signific

221、antly increase.The new generation of ICT technologies,represented by cloud computing,AI,5G,and others,provides a backbone digital transformation of the power grid.The smart grid concept allows for highly integrated power flow,information flow and business processes.Through the application of new inf

222、ormation technologies in the grid system,it is expected that intelligent sensing and real-time monitoring within the physical grid will become possible.This will happen by mining and analyzing real-time data to dynamically optimize decision making processes and enhance the operational flexibility of

223、 the power grid.The total investment in power grid during the 14th FYP is at a record highAccording to the States Grids general planning report,the total planned investment in the state grid from 2009 to 2020 is RMB 34.5 trillion,of which RMB 384 billion is invested in grid digitalization,accounting

224、 for 11%of the total investment.In the last three stages,the proportion of digitalization investment to total grid investment is 6%,11%and 12%respectively,gradually increasing.In November 2020,the Proposal of the Central Committee of the Communist Party of China on Formulating the 14th Five-Year Pla

225、n for National Economic and Social Development and the Visionary Goals for 2030 proposed the concept of“new infrastructure”,the power industry is listed as one of the key areas for consideration.In December 2021,the Central Economic Work Conference released a document on moderately over-investing in

226、 infrastructure,and the main direction of this round of new infrastructure will fall on the construction of energy storage,ultra-high voltage transmission,and smart grid.In January 2022,the State Council issued the 14th Five-Year Plan for the Development of Digital Economy,which includes promoting t

227、he digital transformation of the power industry.In recent years,a number of policies have shown the determination of the government to advance the digitalization of the power grid.Favorable policies to promote grid digitalizationThe Green LeapThe supply side power generation and the electricity grid

228、During the 14th FYP period,the State Grid and the China Southern Power Grid will invest a total of more than RMB 2.9 trillion in power grids,and if regional power grid companies outside the two major power grids are included,the total investment in the national grid during the 14th FYP is expected t

229、o reach RMB 3.0 trillion.Source:The State Grids Intelligent Planning General Report Exhibit 29:Digitalization investment by the State Grid,in RMB bn,2009 to 20200.62.21.75.610.13.310.62%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

230、.2118.514.757.12%6%19%23%31%4%15%Investment(RMB bn)PctInvestment(RMB bn)Investment(RMB bn)PctPctInvestment(RMB bn)Pct1st Phase（2009-2010）2nd Phase（2011-2015）3rd Phase（2016-2020）TotalPower TransformationSegmentsPower GenerationPower TransmissionPower DistributionPower ConsumptionSchedulingCommunicati

231、on Platform3,841100%1,750100%1,750100%341100%TotalExhibit 30:Digitalization investment by the State Grid,in RMB tn,12th FYP to 14th FYPState GridRegional gridsGrids totalChina southern Power GridSource:The State Grid,China Southern Power Grid,MioTech Research3.512th FYP13th FYP14th FYP22.5311.5022.6

232、2.20.70.131The Green LeapThe supply side power generation and the electricity gridUnprecedented demand for energy IT amid fast-track transition to a smart power systemDesigning is an essential part of the initial phase of grid construction.The grid designing industry will be a direct beneficiary of

233、the growing construction of power distribution networks,while the transition to a smart power system is making the digitalization of designing works compulsory.As the need to transform the grid applies nationwide,a one-stop-shop solution will be favored.Meanwhile,as the adoption of new technologies

234、has made grid designing much more professional and complex,turning it from original 2D designing to 3D designing,design software will need to be optimized to meet the higher requirements.Henghua Technology(300365.SZ).Founded in 2000,the company is equipped with strong R&D capacity,outstanding inform

235、ation technology capability and a wealth of engineering experiences to bring the emerging technologies like cloud computing,IoT,big data,mobile Internet,and AI to the rollout of smart grids,energy systems,water conservation and transportation.The company owns the intellectual property rights of its

236、self-developed software to design 3D transmission lines,3D substations,3D cables and 3D grid distribution systems,which allows geographic information input from multiple sources,including laser point cloud and tilt measurement.The software functions meet the criterion developed by the State Grid and

237、 its outputs meet State Grids GIM standards and can be directly referenced for construction.0.471.Grid design and software solutionsWith the progressing of strong smart grid and power IoT,the demands are continuously rising for automated IT systems to operate the transmission and distribution grid.T

238、he Energy Management System(EMS)that controls power generation and transmission and the Distribution Management System(DMS)that controls power distribution and grid load are necessary IT systems to keep the grid running smoothly.Now,the two systems need to be smarter than ever.EMS performs stimulati

239、on and computation based on real-time data to derive status analysis,tide calculations,economic operation calculations,and static or dynamic safe operational analysis,and uses these to adjust grid operations for improved safety and efficiency.The SCADA system seamlessly collects real-time data,inclu

240、ding the voltages,currents and power outputs of various components including transformers and lines,the status of each circuit breaker,and whether a breaker is open or closed.Built on the data,the system can monitor and control the substations.Source:Power Source Motion The difference between DMS an

241、d EMS,EMS and DMS software relationshipExhibit 31:Power transmission and distribution smart managementPower GeneratorSubstationConsumerTransmissionDistributionAutomatedschedulingEMSDMSSCADA2.Smart management of power transmission and distribution32The Green LeapThe supply side power generation and t

242、he electricity gridEach unit of the entire process from power generation to end-users could be made smart with the integration of new smart products:1.Intelligent transmission management system:The intelligent management system is expected to merge the different,separate procedures of task planning,

243、data collection,data analytics and storage into a whole system.It will target the inter-connection of internal systems data for in-depth analysis and decision-making to form a complete closed loop of power distribution and operational inspection.It enables the management of transmission lines to be

244、precise,systematic,intelligent and visualized.An example would be the system developed by Zhongfei Sunway,with modules including task allocation,drone-powered data collection,inspection result manager,fault elimination manager,statistics and alert manager,account of transmission lines,drone device m

245、anager,and drone operation monitor.Exhibit 32:Intelligent operation and maintenance IT products for electricity transmis-sion,transformation and distributionSource:MioTech ResearchSegmentsRelated technologies and functionsSmart monitoring technologies,such as transmission line channel visualization

246、and condition monitoring,image analysis,automatic identification of risks and defects,warning notifications,drone inspection,etc.Online monitoring,security,environment,and graphics system for substation equipment.The construction of automated distribution,with the ability to auto-correct system faul

247、ts,which can effectively execute status monitoring of the distribution network,fault location,automatic fault isolation and network reconfiguration.TransmissionTransformation substationDistributionExhibit 33:Intelligent transmission management system modulesSource:Zhongfei Sunway official websiteMai

248、n modulesMain Module3D VisilizationPlanned Task MgtDrone InspectionMain InspectionGrid Resrouce MgtInventory MgtEquipment MgtStatistical ReportInboxAuthorization MgtSystem Mgt33The Green LeapThe supply side power generation and the electricity grid2.Intelligent transformation substation management s

249、ystem:The majority of the quasi-intelligent substation systems available so far are a combination of various smaller systems,each of which has a sole function.However,the core of a real intelligent substation system is web,built on data integration to break the information barriers and enable the in

250、ternal and external connections of substations.It will consolidate the substations located in different cities or countries.Moreover,the all-in-one management system can identify potential risks with a toolbox of access control,indicator monitoring,data analysis and projection,and act in response to

251、 provide a safeguard for the system equipment and staff workers at substations.3.Intelligent distribution management system:Notably,China has called for more investment in leveling up the distribution grid in the 14th FYP period running from 2021 to 2025.The State Grid has decided to spend half of i

252、ts total investment planned for the five years on the distribution grid,which amounts to RMB 1.2tn.China Southern Power Grid aims to invest RMB 320bn,also close to half of its total planned investment.The increasing net load and the larger role played by renewables in the power system have prompted

253、grid companies to improve their distribution capability.The conventional distribution grid runs single way,where it only receives load from the grid,equipped with a standard transformer and simple protection,automation and communication devices.With VRE integration,the conventional passive style dis

254、tribution grid will be replaced by an active network with small and medium-sized power sources.The distributed power supply system with two-way currents is making the distribution network more complex and leading to issues with the quality of electricity and the capacity factor on the grid side.Rece

255、ivers of low-voltage electric power,like energy storage devices and electric vehicles,require the distribution network to adjust the low-voltage port and enable two-way communication posing challenges with line protection for both low-voltage and medium-voltage networks.Such challenges have given ri

256、se to the emergence of an intelligent distribution management system.With demand-side management technologies and applications,the system can achieve the optimal economic efficiency to make the most of the load and ensure high-quality power supply.The highlight of an intelligent distribution managem

257、ent system is a highly-effective real-time monitor that incorporates a dynamic power curve,reverse tide,and issues with power output adjustment.Exhibit 34:Conventional and future distribution grid modesHigh VoltageHigh VoltageTwo-way tideMedium VoltageMedium VoltageVRE IntegrationControllable Freque

258、ncy RegulatorLow VoltageLow VoltageEnergy Storage and Vehicle to Grid(V2G)GridGridConventional Distribution GridVRE-Integrated Smart Distribution Grid34The Green LeapThe supply side power generation and the electricity gridOn the one hand,the intelligent power distribution monitor can leverage the v

259、isual“digital twin”to establish a simulation model of the distribution network to replace manual monitoring.Staff can refer to the chronological event records,waveform records,fault records to quickly analyze the faults,location and resolve the issues to minimize the time of disruption.The system ca

260、n collect the data for indicators like current,voltage,power output,as well as voltage fluctuation of each circuit and device,to analyze and manage the power efficiency of the distribution system and end-using device.The intelligent distribution system can significantly reduce transmission losses at

261、 each unit and improve the overall efficiency.On the other hand,automatic and intelligent inspection approaches to the distribution system are able to sense the status and operational environment of equipment seamlessly amid the use of increasingly complex electric devices and power sources.It manag

262、es to improve the stability of the grid and its ability for emergency response.In addition to that,if a video camera is connected,the system can retrieve the on-site graphics upon emergencies like a short circuit,and capture the object with malfunctions by turning the camera,which reduces the time t

263、o analyze and respond to the emergencies.Dongfang Electronics Corporation(000682.SZ)The company is a hi-tech business group combining R&D,production and operation,technical services and system integration.It is one of the major suppliers of Chinas energy management system solutions,and also the key

264、hi-tech enterprise.Senter ElectronicsFounded in 1996,the company has a variety of products developed on its independent intellectual property rights in the communications and electric power for other industries and is committed to becoming a leading provider of industry-level IoT solutions in China.

265、In the electric power industry,it has clients like State Grid,to which it offers power substation,transmission,and distribution solutions.The main products include auxiliary monitoring systems for intelligent substations,visual inspection systems for transmission lines,intelligent active operation a

266、nd maintenance systems for the power station area,and electric power mobile operation terminals,of which its transmission line visual inspector has a number of patented technologies applied.Company implicationsParticipants in the electricity market include power generation companies,grid operators,p

267、ower distribution and sales companies,trading agencies,dispatching agencies,end users,and energy storage firms.They have different needs for the informatization of the electricity trading market:3.Digitalized Electricity Market For power supply and sales firms,an auxiliary decision-making system for

268、 the market trading is needed,as well as a trade mocking system to help optimize the strategy to provide more accurate quotes.For trading agencies,they need to purchase more advanced electricity trading settlement and support systems.For electricity consumers,it is necessary to monitor electricity c

269、onsumption,analyze safety real-time,and manage the consumption towards better energy efficiency,all with the presence of automatic electricity consumption systems and smart meter systems.35The Green LeapThe supply side power generation and the electricity gridYGSOFT INC(002063.SZ)YGSOFT Inc.is a tec

270、hnology provider of energy inter-connection,social service information technologies,products and services in China.It has specialized in information-based management of large corporations for over 30 years.Its main products and services include group management,intelligent energy,intelligent Interne

271、t of things,digital society,etc.NARI Technology(600406.SH)Founded in 2001,NARI Technology Co.,Ltd.(abbr.as NARI-TECH)is a leading supplier of solutions for power and automation technologies in China.It has business with 222 electricity market participants across 14 provinces,covering power system au

272、tomation,smart grid,renewable energy,railway automation,industrial control,energy conservation and environment protection,power plant auxiliary equipment technology,etc.Company implications36The Green LeapThe supply side power generation and the electricity grid37II.The demand side sectoral use of e

273、nergyOverview:Chinas Commitments to Demand Side Carbon Emission ReductionSince 1997,the total carbon emissions in China have shown a steady upward trend along with the economic growth.The trend was curbed in 2014,as the greater decrease in emissions per unit of GDP offset the economic growth rate.Al

274、ong the timeline,the country rolled out total energy consumption and consumption intensity control policies in the 12th FYP documents in 2014,and supply-side structural reform in 2015.According to the latest CEADs data,as of 2019,the total carbon emission reached 9.8 billion tCO2e,meanwhile emission

275、s per unit of GDP has decreased 72%from 1997.Chinas top three industries with the highest carbon emissions are electricity and heat generation,ferrous metal smelting,and mining,with annual carbon emissions of approximately 4.6,1.9,and 1.1 billion tons respectively in 2019,accounting for 47%,19%and 1

276、1%of the countrys total carbon emissions.Exhibit 1:Chinas total carbon emissions and emissions per unit of GDP,19972019(Million Tons of CO2e)Source：CEADs、MioTech Research12,00010,0008,0006,000Total Emission(Mil tons CO2e)Emissions per unit of GDP(kg CO2e/RMB)4,0002,000920002000

277、420052006200720082009200001900.000.050.100.150.200.250.300.350.40The Green LeapThe demand side sectoral use of energy38Exhibit 2:Carbon emissions of top five sectors in China(2019)Source：CEADs、MioTech ResearchMillion Tons5,0004,0003,0002,0001,000Electricity and heat

278、generationFerrous-metal processingMineral mining and processingTransportationUrban residential0Exhibit 3:Historical carbon emissions of the top five sectors in China,7020004200520062007200820092000162017Million Tons5,0004,0003,0002,0001,000Produ

279、ction and Supply of Electric Power,Steam and Hot WaterSmelting and Pressing of Ferrous MetalsNon-metallic Mineral ProductsTransportation,Storage,Post and Telecommunication ServicesRaw Chemical Materials and Chemical ProductsSource：CEADs、MioTech ResearchThe Green LeapThe demand side sectoral use of e

280、nergy39One important trend is that the primary policy target in focus has shifted from energy intensity to emission intensity control.The State Council and relevant Ministries have formulated high-level policies to set the agenda for energy-consumption sectors to achieve the decarbonization targets

281、in the 2030 and 2060 timeline.Meanwhile,bottom-up commitments from the provincial and municipal levels have collectively set long-term development targets for the carbon peaking and neutrality goals.According to our study,17 out of 31 provincial administrations have already rolled out policy documen

282、ts related to carbon peaking and neutrality,and the rest are in the progress.Exhibit 4:Provincial level commitments on achieving“3060”carbon goals(selected)BeijingTianjinHebeiLiaoningHei LongjiangShanxiThe Thirty-eighth Meeting of the Standing Committee of the 15th Beijing Peoples CongressPromotiona

283、l Ordinance on Tianjin Carbon Peaking and Carbon Neutrality Shanxi Provincial Government Work Report 2022Accelerating the Establishment of a Sound Green Low Carbon Cycle Development of Economic System Task MeasuresImplementation Plan on Promoting Carbon Peaking and Carbon Neutrality in 2021-2023Impl

284、ementation Opinions on the Complete and Accurate Implementation of the New Development Concept in Carbon Peaking and Carbon Neutrality GoalsAccelerate the formulation of documents on carbon peaking and carbon neutrality;Promote low-carbon transformation in energy,transportation,and construction sect

285、ors,etc.Promote low-carbon transformation in energy,transportation,and construction sectors,etc.By 2025,the proportion of non-fossil energy consumption will reach over 13%;the forest coverage rate will reach 36.5%;By 2030,the proportion of non-fossil energy consumption will reach over 19%;the forest

286、 coverage will reach about 38%,the goal of carbon neutrality shall be achieved by 2060.By 2025,the value added of strategic emerging industries will account for 8.5%of the regional GDP,the proportion of installed non-fossil energy will exceed 50%,the installed wind power and photovoltaic power will

287、strive to reach more than 30 GW,and new nuclear power installations will reach 2.24 GW.Formulate the implementation plan of carbon peaking according to the national policyFormulate decarbonization work plan and the implementation of the carbon peaking planProvincePoliciesCarbon goalsThe Green LeapTh

288、e demand side sectoral use of energy40As a matter of fact,the current carbon emission situations are unique on provincial levels.According to MioTechs satellite data,the three provinces with the highest annual carbon emissions in 2019 are Jiangsu,Shandong,and Guangdong,with 263,251 and 220 million t

289、ons respectively,all of which have introduced decarbonization policy documents,with Jiangsu and Shandong having formulated clear quantitative targets.The 17 provinces that have introduced carbon policy documents are home to a total of 1.7 billion tons of carbon emissions,accounting for approximately

290、 56.7%of total annual carbon emissions.Source:Government websites，MioTech ResearchShanghaiPublic Institutions Green Low Carbon Cycle Development Action Plan in ShanghaiBy 2023,the total energy consumption of public institutions in the city will be controlled within 1.71 million tons of standard coal

291、;carbon dioxide emissions will be controlled within 3.2 million tons,and the installed solar photovoltaic will reach 50,000 kilowatts.The energy consumption per unit of floor area,comprehensive energy consumption per capita and water consumption per capita will be reduced by 3%,3.6%and 4.2%respectiv

292、ely compared to 2020Exhibit 5:Carbon emissions(million tons of CO2e)of 31 provinces in Mainland ChinaSource：AMI,MioTech Research0500300JiangsuShandongGuangdongInner MongoliaHebeiHei LongjiangHenanZhejiangShannxiLiaoningXinjiangAnhuiShanxiJilinFujianShanghaiBeijingHubeiTianjinHunanYunnanSi

293、chuanGansuGuangxiGuizhouJiangxiNingxiaChongqingHainanQinghaiTibetThe Green LeapThe demand side sectoral use of energy41The Industrial SectorIndustrial manufacturing is a fundamental sector that profoundly impacts the economy.The industrial sector has a strong demand for upstream raw materials,while

294、the importance of the products it produces and sells,whether primary materials such as steel or end-user products such as household appliances and automobiles,is ubiquitous in everyday life.In China,the industrial sector has been the backbone of its rapid economic growth for decades.China now has th

295、e largest industrial sector in the world,as well as the most complete industrial system and sectors.With its intensive energy consumption and high greenhouse gasses(GHG)emission intensity,the industrial sector is a key area of focus for Chinas carbon neutrality.GHG emissions from the industrial sect

296、or consist of three types of activities:manufacturing of products,supply of raw materials,and processing and use of the finished products sold.The majority of emissions from industrial enterprises fall into scope one and two,referring mainly to emissions from the manufacturing of their products,of w

297、hich carbon dioxide accounts for more than 90%of direct emissions.Less than 10%of direct industrial emissions consist of GHG other than carbon dioxide:methane(from carbon black production),fluoride(for refrigeration)and nitrous oxide(from acetaldehyde and nitric acid production).Emissions from the u

298、se of fossil fuels 1)as raw materials for production,2)as fuel and power,and 3)from purchased electricity together constitute the industrial sectors CO2 emissions.In China,the industrial sector is the largest consumer of energy among all social sectors.According to the National Bureau of Statistics,

299、total industrial energy consumption in 2020 was 3,326 million tons of coal equivalent(Mtce),accounting for two-thirds of the total energy consumption of the whole society(4,983 Mtce).Exhibit 6:Energy consumption(Mtce)by social sectors in China in 2020Exhibit 7:Energy consumption(Mtce)by industrial s

300、ub-sectors in China in 202027969393282413644132ResidentialOthersConstructionsAgriculture,Forestry and FisheriesCommerceTransportEnergy Production and MiningManufacturingSource:China Electricity Council,MioTech ResearchIron and SteelOther ManufacturingNon-metallic MaterialNon-ferrous MetalFossil Fuel

301、 ProcessingChemicals669598567354353255530The Green LeapThe demand side sectoral use of energy42Due to the governments continuous push for supply-side structural reform,transformation of energy-intensive industries and other measures,Chinas carbon emission intensity in the industrial sector has shown

302、 a gradual decline in the past 30 years.However,compared with the other top five economies in the world,its carbon emission intensity is relatively high,with still large potential for energy saving and emission reduction in the industrial sector.Exhibit 8:Carbon emission intensity of industrial ener

303、gy consumption for the top five economies in the world,1990-2019Source:IEA,MioTech Research00708002005201020152019ChinaUnited StatesEUJapanGermanyCarbon intensity ofindustry consumption(gCO2/MJ)The industrial sector has been widely recognized as a difficult area for decarboniza

304、tion due to the complexity of industrial processes and the high cost of emission reduction,among other reasons.The investment in decarbonization technologies in industry has also been consistently lower than in sectors such as energy,buildings,and transportation.This makes the path to carbon neutral

305、ity in the industrial sector not as clear as in other sectors.From the technical point of view,there are four main points of difficulty in decarbonizing the industrial sector.Challenges and OpportunitiesThe Green LeapThe demand side sectoral use of energy43 First,carbon emissions from raw materials

306、directly consumed in processes cannot be simply replaced or removed,and can only be reduced by improving the process efficiency.Second,fossil fuels are mostly used in industrial production to generate high-temperature heat(typically reach 700 C to over 1,600 C)for processes such as smelting and high

307、-temperature heat treatment.Reducing these emissions by switching to zero-carbon electricity will be difficult,as it will require significant changes in the process flow and equipment.Third,industrial processes are highly integrated,so any change to one part of the process must be accompanied by cha

308、nges to other parts of that process.Finally,industrial plants have long life cycles,often exceeding 50 years with regular maintenance.Changing the processes in an existing plant requires extensive rebuilding or retrofitting,often expensive.In addition,economic factors add to the challenge.Products f

309、rom key industrial sectors,such as steel,oil,basic chemicals and nonferrous metals,are among bulk commodities traded globally.Buyers of these commodities are often very price sensitive and not willing to pay for so-called greener or lower carbon production processes.Companies that increase their pro

310、duction costs by adopting low-carbon processes will therefore find themselves at a competitive disadvantage.In 2021,the Party Central Committee and the State Council issued Opinions on the Complete and Accurate Implementation of the New Development Concept for Carbon Neutrality and the Action Plan f

311、or Carbon Neutrality by 2030,which together constitute the top-level design document for the two phases of carbon neutrality.Regarding the decarbonization path for the industrial sector,both documents mention industrial restructuring and means to improve energy use efficiency,and provide guidance on

312、 the work of key carbon-control industries such as iron and steel,nonferrous metals,building materials and petrochemicals in the State Councils program.It is expected that the National Development and Reform Commission(NDRC)will issue an official version of the overall carbon neutral action plan for

313、 the industrial sector during 2022,and may issue draft opinions on the implementation plan for key industries such as steel,nonferrous metals,building materials,chemicals and petrochemicals.Even though there are many challenges mentioned above,we believe there are already technologies enabling carbo

314、n peaking paths that gradually show uptrends in development:1.the recycling and recovery of energy-intensive products,particularly steel,aluminum,paper,and plastic;2.the efficiency improvement of industrial general equipment such as motors,transformers and industrial control equipment;3.waste heat r

315、ecovery and utilization for energy gradient use or power generation.The Green LeapThe demand side sectoral use of energy441.Recycling of energy-intensive products steel,aluminum,paper and plasticRecycling can reduce the demand for feedstock processing.Particularly in the case of energy intensive ind

316、ustries,recycled products can significantly reduce the carbon dioxide footprint by replacing processes of high energy consumption with lower ones.In July 2021,the NDRC released the 14th Five-Year Plan(FYP)for the development of circular economy,which proposed to build a resource recycling industrial

317、 system,planned to recycle 60 million tons of waste paper,320 million tons of steel scrap,20 million tons of nonferrous metals,including 4 million tons of copper,11.5 million tons of aluminum,and 3 million tons of lead,and the recycling industry total output value of RMB5 trillion by 2025.The nation

318、al carbon trading market is phasing in industries,and the implied carbon price of the energy-intensive products shall provide more incentive for recycled substitutes.Currently,the power industry is included in the national carbon market.Industries with highest emissions,petrochemicals,chemicals,buil

319、ding materials,iron and steelmaking,nonferrous metals,and paper will be phased in by 2025.Among them,steel,aluminum,paper and plastics are indispensable raw materials or primary products.The industries are also contributors to high energy consumption and high carbon emissions,with considerable poten

320、tial for greater circularity.By recycled volume and recovery value,the top four varieties are scrap steel,scrap nonferrous metal,waste paper,and waste plastics,which are all related to energy-intensive industries.To better understand in a quantitative way,we have calculated the carbon emission reduc

321、tion potential of the four types in detail,as follows.High emission reduction potential of recycled productsSteel ScrapAluminum ScrapWaste plasticsPaper and cardboardsExhibit 9:Picture of recyclable materials The Green LeapThe demand side sectoral use of energy45Recycled steel:The 14th FYPs target i

322、s to recycle 320 million tons of scrap steel by 2025.After years of supply-side reform,Chinas crude steel production has been reduced significantly,but the overall revenue of the steel industry is still growing steadily,reaching RMB8.9 trillion.Currently,Chinas steelmakers predominantly adopt blast

323、furnace ironmaking,which is a very energy-intensive metallurgical process,while scrap steels electric arc furnace process greatly reduces carbon emission.If renewable electricity is used,the emission reduction efficiency can be further increased.Recycled aluminum:The primary aluminum production indu

324、stry is one of the most carbon-intensive industries.The electrolytic process for aluminum production consumes a huge amount of energy.On the other hand,secondary(recycled)aluminum has only 5%of the carbon emission intensity of primary aluminum.The 14th FYP proposes 11.5 million tons of domestic alum

325、inum recycling.Combined with numbers taken from the China Products Carbon Footprint Factors Database,each ton of recycled aluminum production reduces over 15 tonnes of carbon dioxide equivalent(tCO2e)compared to primary aluminum production,with an overall emission reduction potential of 173 million

326、tCO2e.In terms of emission reduction efficiency and overall potential,recycled aluminum production is the most noteworthy alternative to energy-intensive industries.Waste paper:The Plan proposes 60 million tons of waste paper recycling during the 14th FYP.In 2020,the countrys paper industry total re

327、venue is RM1.3tn and waste pulp consumption rate is about 55%.When comparing the emission factor of waste paper pulp with that of virgin paper pulp,research has found out the emission reduction efficiency of waste paper recycling is 5.42tCO2e per ton.Waste plastics:According to the NDRC estimates,th

328、e plastic recycling volume will reach 25 million tons in 2025,and the recycling rate will increase from 26.7%to 30%this year.Each ton of recycled plastic can reduce Exhibit 10:Emission reduction potential of scrap steel,aluminum,paper and plasticSource:the 14th Five-Year Plan for the Development of

329、Circular Economy,Quantitative Analysis of Recycling and Carbon Emission Reduction,China Products Carbon Footprint Factors Database,MioTech Research Recycling volume(Million ton,2025)320Blast furnace and the following processes electric arc furnaceprocesses0.6815.085.421.94Aluminum production from mi

330、neral from scrap aluminumEvery 1.25 tons of waste paper makes 1 ton of pulp,saving 70%of energyPlastic produc-tion from petrochemical processes-from waste plastic126025417Steel Aluminum Paper Plastic TotalEmission reduction pathway(By substituting virgin material processes with recycled material)Emi

331、ssion reduction efficiency(t CO2e/t）Total carbon emission reduction(Million tons of CO2e,2025)265The Green LeapThe demand side sectoral use of energy46Steel,aluminum,paper and plastic recycling has immense emission reduction implications.According to our calculation,the total carbon emiss

332、ion reduction in 2022 to 2025 could reach 2,865 million tCO2e,equivalent to the carbon sink of 10million square kilometers of urban forest close to the size of the whole of Europe-in one year.In 2022 alone,we forecast the recycling level of the four commodities to be 670 million tCO2e,almost three t

333、imes the estimated annual carbon removal from the forests in the entire Europe.According to the data of the Ministry of Commerce,Chinas recycling system is characterized by high fragmentation and low barriers of entry,with about 159,600 recycling outlets,1,837 sorting centers,266 distribution markets and 63 sorting clusters.The policy is promoting the integration of the two networks of waste class