On June 13, China Minsheng Xinguang Co., Ltd. ("CMIG Xinguang") unveiled CMIG Zhihui, a platform designed for interactive service throughout the industrial chain of new energy resources.
Specializing in clean household energy, CMIG Xinguang is an wholly-owned subsidiary of CMIG New Energy, which positions itself as a professional platform for new energy investment.
At the press conference, CMIG President Li Huaizhen portrayed CMIG Zhihui as "the first platform in China to deliver interactive services for household PV system, and another innovation endeavour of CMIG in new energy after the world's largest single-cell photovoltaic power station in Ningxia.” Li added that the platform would redefine business model and future of residential PV market in China.
"CMIG Zhihui marks an important step of CMIG New Energy to carry out its strategy of "making new energy resources available to all", and expand the "Prosperity Project in Counties". With the platform, household PV systems will find their footprints in huge county markets." said Bai Ruiping, Chairman and President of CMIG New Energy.
Despite fully-fledged business in large PV power stations and rooftop PV systems for industrial and commercial purpose, China has yet to tap into its residential PV market, a much coveted segment.
According to Li Junfeng, former director of National Center for Climate Change Strategy and International Cooperation (NCSC), China's residential PV market has blossomed thanks to rapid development over the past two years, yet a far cry from countries like Germany and America. This presents us both opportunities and challenges.
China is a promising market in household PV system. There are 500 million households and 40 million detached houses in China. A national investigation estimates that a market value of up to RMB 320 billion can be created as long as 20% of Chinese households install rooftop PV arrays. By 2016, 270,000 Chinese households have installed PV systems, less than 3% of estimated market size.
Statistics reveal that local governments also give strong support with more than 30 provinces, cities and counties granting subsidies as an addition to state funds.
Bao Yudong, Executive Vice President of CMIG Xinguang told the 21st Century Business Herald that, "China's residential PV market is dominated by various kinds of business models, and 80% of its market opportunities are seized by small local operators. The market demands a bellwether to launch brands highly recognizable and acceptable in the market".
Yan Shuliang, General Manager of PV Division of Hefei RoyalStar Solar Energy Co., Ltd. described the common pattern in residential PV market: core materials and integrated systems are supplied and distributed to local agents, and then sold to individual household.
The pattern has two pain points: first, system quality and maintenance service may not be guaranteed given core components and agents at varying levels. Second, local agents, with small business and capital scale, have poor bargaining power to obtain quality PV modules, inverters and other key components. As for end users, they are subject to financial pressure in one-time purchase because it is difficult to apply for loan. In this light, both are not accessible to financial services under the existing model.
Bao told an extreme yet typical case where a peer company deposited two million yuan in a bank in the hope of getting loans and maximizing its profits. However, only 40,000 yuan is granted. This is a clear case for difficulty in getting loans..
Pooling Capital for Scale Effect
CMIG Xinguang has launched the S2B platform (CMIG Zhihui) in an effort to boost industry development with financial concepts and capital input, and to bring together material suppliers, agents, end users and other stakeholders throughout the industry chain. In this way, the platform can promote new technologies, business models and cooperation.
CMIG will conduct collective purchase among suppliers, integrate PV systems and purchase various insurances for them. Besides the introduction of individual users, the platform also encourages agents to channel their offline customers.
"Suppliers will enjoy more marketing channels for free, without losing their existing ones" Agents will take on a new role rather than reaping profits from the previous model of buying low and selling high.
Specifically, they will become in fact informal "salespersons" of CMIG Xinguang. After paying a certain deposit, they can enjoy a benefit three times their deposit for equipment delivery without any full payment.
For example, an agent who has one million yuan can use it for deposit, and enjoy the benefit after joining the platform. Suppose 10 turnarounds every year, the agent can have the right to take delivery of goods valuing 30 million yuan.
"The agent will gain profit from the discount that CMIG Xinguang provides in system installation rather than system sales, and the profit is considerable." said Bao Yudong.
Agents can get their deposit back. However, agents need to pay a certain amount of initial fee every year to CMIG New Energy, as well as platform licensing fee and the deposit refunded based on agreed conditions for every delivery.
End users also constitute an important part of CMIG Zhihui. According to model design, users can have the system installed with zero down payment, putting an end to their pressure caused by full payment or loan application. In the following ten to fifteen years, electricity cost generated by such PV systems may be partly paid to CMIG New Energy for these systems and service. Users can only own the equipment until the final payment is made.
Yan believed that "the business model is innovative in that capital like platform licensing fee and deposit of agents are pooled and further guaranteed by CMIG and CMIG New Energy, allowing the fund to play a bigger role. Through investment and operation, core material suppliers, agents, users and CMIG Zhihui can share profits and risks.
"CMIG Zhihui will also provide other functions for agents, such as marketing, technical training and brand promotion." Bao indicated that CMIG Xinguang would first focus on increasing its share in residential PV market, and then take profitability into account.
The business model on the strength of brand effect and capital advantage of CMIG is impossible to replicate, said Yan Shuliang.