LvS Partners has been collaborating with the deep-tech accelerator Ecolabs Centre for Innovation for Energy. The collaboration focuses on driving the commercialisation and internationalisation of early-stage tech companies. From this collaboration LvS Partners have seen a range of companies establishing and capitalising on market trends in the energy and industrial sectors. Specifically, innovative technology solutions that address smart manufacturing, building energy management, and energy storage. These sectors are seeing demand in China due to market developments and are sectors that LvS invest in. This article will discuss observations about these sector landscapes and where market opportunities lie.
As a global hub for manufacturing, China’s manufacturing sector has continued to persist as a major driver of growth in the Chinese economy. China is undergoing a structural shift in its economic composition, which will reposition the country as a services-based economy and push the manufacturing sector from low-end manufacturing toward higher value-added production. These shifts have driven the emergence of smart manufacturing. Smart manufacturing is a collective term for advanced manufacturing processes, systems, and models, based on a new generation of information technology. They cover a breadth of activities from design and production to management and services.
The development of smart manufacturing has produced significant results, ushing in a period of rapid growth. In China, the growth of smart manufacturing can be seen in three areas. First, Chinese industrial enterprises have benefited from a higher level of digital penetration, laying a foundation for future connected, predictive, and adaptive manufacturing systems. Second, regarding financial benefits, smart manufacturing is starting to contribute to corporate profitability. Third, in terms of generic application, China has become the world’s largest consumer of industrial robots.
A Deloitte survey revealed the smart manufacturing areas Chinese industrial enterprises are concentrating on. The surveyed enterprises focus areas for smart manufacturing deployment are digital factory (63%), in-depth extraction of equipment and user value (62%), industrial internet of things (48%), business model restructuring (36%), and artificial intelligence (21%) .
Smart manufacturing falls within the general scope of Industry 4.0. As China’s manufacturing sector has improved its digital capacity and quality, it has set the foundation for the industry 4.0 development path to be realised within this sector (figure 1). Given the appetite of Chinese manufacturers to digitalise and commence their smart manufacturing journey, LvS see great potential for companies providing solutions in this sector.
Building Energy Management
China will account for approximately half of new construction globally in the coming decade. The Global Building Performance Network predicts that without carrying out specific energy efficiency measures, China will face a growth of almost 160% in building energy use by 2050 . To curb building energy demand, the Chinese government has launched a series of policies and programs. Both, growth in buildings and renovations, along with the policies to promote green buildings, are creating a large market for energy efficiency products and services.
Green building is essentially the practice of creating structures and using processes that are environmentally responsible and energy efficient throughout a building’s lifecycle from site selection to design, construction, operation, maintenance, and deconstruction. In terms of policy, the 13th Five Year Plan for Building Energy Efficiency and Green Building Development, released by the Ministry of Housing and Urban-Rural Development of China (MOHURD) in 2016, sets out a few goals to achieve the development of green buildings by 2020. For example, the energy efficiency of newly constructed buildings in urban townships to be improved by 20%, and 50% of newly constructed buildings in urban townships to be certified as a green building. In the coming 14th Five Year Plan, China will once again be making climate change a central policy priority. China is expected to implement a series of ambitious and aggressive plans for green and low-carbon development to reach peak carbon emissions by 2030. Green building development can expect to be supported by policy with further energy saving targets.
LvS has witnessed and worked with several unique cloud-based AI SaaS products that provide solutions for building energy management. These can be used to directly enable the green building evolution and help meet building energy targets. SaaS offer ways to automatically optimize building energy settings in real time. The cloud-based nature allows the products to complement existing building management systems and advanced data analytic platforms. By working with existing building infrastructure and not requiring installation of additional hardware devices, the SaaS approach allows fast building integration. Upgrading building energy management systems is one of the quickest ways landlords can optimise their energy savings.
In addition to the environmental benefits, green building shows promise for better returns on behalf of the owners and developers (figure 2). A green transition in the Chinese real estate landscape will drive a growth for building energy management solutions. With strong policy tail winds and investment incentives for building owners to go green, LvS believe building energy management solutions will pay a crucial role in this transition.
The Chinese economy has gradually been opening to foreign investment and free market forces over the past several decades. This trend has been increasingly visible in the energy storage market. The state-owned State Grid Corporation of China—the world’s largest utility company—has already been deploying energy storage systems to provide various services throughout its grid. Furthermore, China is in the process of reforming its energy markets to allow non-state-owned power providers to enter the market, opening opportunities for independent power producers to provide ancillary and capacity services with their energy storage systems.
By the end of 2019, operational energy storage capacity in China totalled 32.4GW (including physical, electrochemical, and thermal energy storage), accounting for 17.6% of total global capacity. Of this capacity, installed electrochemical energy storage projects comprised 1709.6MW, an increase of 60% compared to 2018 . Electrochemical battery market, primarily made up of lithium-ion, lead-acid, and flow batteries, is one of the fastest growing (figure 3) and most open to non-state enterprise participation.
The use of energy storage for renewable energy stations saw increased potential, with expectations of becoming a major new growth point in the future. With the demands for electrochemical energy storage being partly driven by microgrids, used for renewable energy excess storage, LvS are seeing great opportunities for redox flow batteries (RFB) in China. RFB’s unique blend of benefits including long lifetime, scalability, and efficiency, make it the ideal battery variant to address the energy storage needs in microgrids. RFB have the potential to play a key role in specific use cases and capture a share of the tremendous growth forecasted in the electrochemical energy storage sector (figure 3). The same applies to other electrochemical energy storage variants that can offer essential advantages for their use cases.
China is a strong growth market for the energy and manufacturing sectors. Government policy support and market demand across energy and manufacturing provide new opportunities for companies to expand. China’s ongoing evolution in the energy and manufacturing sector will continue to make room for new companies.
China has the market potential but penetrating and achieving results is a separate issue. At first glance the trends and market shifts discussed can be alluring. The challenge remains in how to capitalise on these markets and move from the macro trend to micro reality. As with any China operation, the devil is in the detail. One of LvS’s answers is to focus on expanding high-tech companies with a specific value proposition guided by a thorough go-to-market plan.
- Deloitte, China’s Smart Manufacturing 2018
- The Global Building Performance Network (GBPN), China Overview 2020
- China Energy Storage Alliance (CNESA), Energy Storage White Paper 2020