The Goals and Opportunities of Smart Energy Services

The Goals and Opportunities of Smart Energy Services

Against the contradiction of rapidly rising fossil energy consumption and increasingly tight supply, how to effectively reduce energy waste, improve energy efficiency, and minimize unnecessary losses in the process of energy conversion has become a major concern for all industries sensitive to energy—and will gradually extend to almost every industry. The emerging business of "smart energy" is intended to help people obtain the most reliable energy at the lowest unit cost, providing them with electricity, heating, cooling, and related value-added services. If measured in fossil fuels, our goal is to extract as much useful energy as possible from every gram of fuel.

The comprehensive unit cost of producing steam, hot water, chilled water, and electricity includes the costs of energy generation, maintenance, operations, and capital. The primary task of smart energy services is therefore to identify and quantify the costs associated with existing energy suppliers, and use that as a baseline for setting targets to reduce unit energy consumption, so that the maximum value can be obtained from every unit of energy consumed. For commercial and industrial users, improving energy efficiency means lowering overall costs and, under the same conditions, enhancing competitiveness. At a deeper level, the goal of smart energy services is to improve users' overall competitiveness through better energy services.

Overall, changes in energy supply-demand relationships and prices are relatively gradual. Their fluctuations are determined not only by supply and demand, but also by changes in the global situation. This makes the process of driving smart energy business development purely through supply-demand incentives a long one. Smart energy must therefore identify its intrinsic opportunities, and under current conditions, such opportunities do exist, mainly in the following areas:

• Aging infrastructure

Opportunities for resource efficiency often begin with investment in outdated facilities. For smart energy businesses, the aging and backward condition of users' power supply systems, energy consumption infrastructure, and the production and distribution systems of other infrastructure often represent the best opportunities. By rebuilding inefficient energy systems into infrastructure with higher energy efficiency, environmental sustainability, and productivity, the value created can offset the funding required for upgrades and generate profit.

In practice, equipment upgrades and retrofits have indeed been the initial entry point for many energy service companies. Through the joint efforts of energy suppliers, service companies, and consumers, the planning, coordination, reconstruction, and operation of more efficient energy systems are continuously evolving. This is a sustainable field that requires ongoing learning and research. However, in the absence of fundamental breakthroughs in basic research, diminishing marginal returns and eventual limits are also to be expected.

2. Information technology

The rapid development of information technology—especially the Internet of Things, big data, machine learning, and cloud technologies—has injected new vitality into the fast development of smart energy. As an integrated energy solution, the key to smart energy lies in establishing real-time capabilities in business communication, decision-making, and risk management. This means integrating information systems that can deliver time-sensitive data to everyone involved in designing and managing investment plans. In the energy world, costs are constantly changing, and technical and operational capabilities should be fully considered as potential sources of investment return. If people can control the generation, consumption, and trading of energy in a more granular way, they will be better able to control costs.

Realizing economic benefits from energy supply investments requires the use of information systems based on advanced network technologies. Network-based technologies allow investors to observe changes in equipment performance, costs, and demand, and to continuously refine and improve their decisions. Because energy supply and demand have complex dynamic characteristics, network-based technologies play a decisive role in determining the sophistication and competitive advantage of smart energy.

3. Opposing business objectives

No matter how much effort grid companies put into smart energy services, they cannot become the ultimate providers of such services. This is because, as traditional energy suppliers, the long-standing objectives of power companies (and energy producers generally) are fundamentally opposed to those of users. Although energy providers often market themselves under banners such as smart energy or energy conservation and environmental protection, these slogans are, to a large extent, more of a gesture than a substance—much like the warning labels on cigarette packages that say "Smoking is harmful to health."

Energy users seek to minimize cost, whereas energy providers seek to sell more energy at higher prices. For grid operators and petrochemical companies that must maintain vast networks, a true transformation in service philosophy is nearly impossible. Moreover, as these networks become larger and more cumbersome, their costs will ultimately remain higher. Therefore, for a period of time, traditional energy suppliers may rely on their natural monopoly advantages to squeeze smart energy service companies through lower prices. But in the long run, these advantages will disappear as smart energy service providers continue to be refined and optimized through competition. At the most fundamental level, the business objectives of smart energy service providers are aligned with those of users. For this reason, they possess the most fundamental opportunities and competitive advantages in the energy business.

4. The barrier of capital

The energy industry is naturally capital-intensive. Infrastructure investment and retrofitting both require substantial financial support. What users often lack is not the vision or the goal of improvement, but rather the ability to overcome the huge upfront investment and the long-term, uncertainty-filled returns that are often the greatest obstacles preventing them from carrying out smart energy upgrades on their own (professional expertise is, of course, another factor).

For this reason, smart energy service providers need to raise large amounts of capital and use intensive capital investment to rapidly accumulate scale. This helps reduce the systemic risks caused by the uncertainty of individual project investments, while also maximizing the efficiency of information systems and thereby further improving returns. For smart energy service providers, capital barriers are a natural barrier to development: they are beneficial in supporting business expansion, but they may also become shackles that constrain the provider's own growth. This issue therefore needs to be viewed dialectically.