Business Operations

Business Development

Hand-in-hand with the world’s move into an era of energy transition, the Chinese mainland introduced its 14th Five-Year Plan for Renewable Energy Development (the “Plan”) in June 2022. The Plan provides guidance to help the Country achieve its carbon peak and carbon neutrality goals, seeking to vigorously advance the development and use of renewable energy for power generation based on around a 20% share of non-fossil energy consumption by 2025. It also proposes that during the Plan period, renewable energy will contribute more than 50% of the incremental consumption of primary energy. The increase in renewable energy generation is expected to account for more than 50% of the total incremental power consumption, with a doubling in the generation of wind and solar power. With these national policies so strongly supporting the development of renewable energy, the prospects of the industry are highly promising.

In line with these policies and despite the recurrence of the COVID-19 epidemic in 2022, the Chinese mainland saw strong year-on-year growth in the newly installed capacity of photovoltaic power. As such, distributed photovoltaics, energy storage, hydrogen energy and smart energy faced some unique historical opportunities during this time.

Towngas Smart Energy established the Towngas Energy brand in 2016, to provide energy planning, energy conservation consultancy and other one-stop services for the Group’s city gas project companies. Building on these strong foundations and riding this positive wave, we have been making significant investments in zero-carbon smart industrial park scenario-based smart energy projects since we officially changed our name to Towngas Smart Energy. Moving forward, we will continue to focus on our three major strategic areas – integration, decarbonisation and digitalisation, as we advance the development of zero-carbon smart industrial parks, photovoltaics, energy storage, as well as charging and swapping station projects.

Currently, the Chinese mainland is still undergoing a gradual transition from fossil fuels to renewable energy. Efficient and clean natural gas will thus continue to play a vital role. The industrial sector, as a key area for energy conservation and carbon reduction, will see the expansion, improvement and application of efficient energy, while at the same time pursuing integrated developments with new energy. At Towngas Smart Energy, we will thus focus on facilitating the development of eight major emission control industries on the Chinese mainland. These include power, steel, nonferrous metals, petrochemicals, building materials, chemicals, paper-making and aviation. Our services will consist of energy conservation and emission reduction solutions, the installation of distributed photovoltaics, as well as every support to help companies to improve their energy efficiency. These services will not only facilitate the transition and upgrading of these industries in the long term, but also help the country to achieve its carbon peak and carbon neutrality goals.

Business Highlights

In 2022, there were over 25,000 different industrial parks in the country. Approximately 2,600 were national and provincial level parks, generating approximately 31% of the country’s total carbon dioxide emissions. This reflects that there exists huge potential for industrial parks to achieve sustainable development and zero carbon emissions.

By the end of 2022, we had planned and invested in more than 500 renewable energy projects in 22 provinces, autonomous regions, and municipalities. We also signed contracts in the development of 80 zero-carbon smart industrial parks, with our business scope spanning multi-energy supply (cooling, heating, electricity), photovoltaics, energy storage, charging and swapping stations, as well as integrated energy services for industrial and commercial customers.

During the year, Towngas Smart Energy stepped up effort in communication and cooperation with a number of sizable enterprises, aiming to accelerate our business planning:

– We signed a strategic cooperation and development agreement with Tai’an Taishan City Construction Group in July 2022. Both parties will cooperate closely in the areas of gas supply, distributed energy heating, abandoned mine management, urban and rural water supply, sewage treatment, environmental management improvement, hydrogen energy application and zero-carbon demonstration city construction to assist Tai’an in its low-carbon development.

– Shenzhen Fuxin Dual Carbon Industry Operation Management Company Limited (a wholly-owned subsidiary of Futian Investment Holdings) and Ruihua (Shenzhen) Integrated Smart Energy Company Limited (co-established by China Power International Development Limited and The Hong Kong and China Gas Company Limited) announced in August 2022 that they would be working together to jointly develop an energy conservation, carbon reduction and transformative energy management contract project for public buildings in Futian. The Futian District Party Committee Compound has been designated a pilot site in this “nearzero carbon” emission project. The project is taking the lead to establish the first nearzero carbon flexible virtual power plant on the Chinese mainland.

Towngas Energy Investment Limited (“Towngas Energy”) and FuturaSun Energy (Jiangsu) Company Limited jointly hosted TERA TOUR to the Chinese mainland 2022 – Suzhou in November 2022 under the theme “Pooling Collective Wisdom of Zero-Carbon Technology”. The initiative not only brought representatives from authorities of Suzhou’s industrial parks, industry associations, renowned investment institutions, key strategic partners and customers together to explore an integrated smart energy application based on digital transformation and source-grid-load-storage integration. It also explored innovative ways to empower Suzhou’s green economic development into the future. Looking forward, TERA TOUR to the Chinese mainland will be held in other cities to further promote collaboration across the industry.

In addition to expanding our business footprint, we also make every effort to improve the quality of products and services provided in these zerocarbon smart industrial parks. In response to the uncertainties in the substance, requirements and assessment, both in scope and methodology, of industrial parks on the Chinese mainland, three basic zero-carbon technical standards for enterprises, the Zero-carbon Smart Industrial Park Indicator System and Standards, Zero-carbon Smart Industrial Park Carbon Emission Statistics Standards and Zero Carbon Smart Industrial Park Assessment and Acceptance Standards, have been introduced to ensure the consistent and sustainable quality of our products and services. These standards, the first implementable and monitorable corporate assessment specifications for energy use and emissions in zero-carbon smart industrial parks on the Chinese mainland, were jointly compiled by Towngas Energy (the lead organiser) with TÜV SÜD and Tsinghua University Energy Internet Innovation Research Institute.

Technology Empowerment

The Implementation Guidelines for Energy Conservation and Carbon Reduction Transformation and Upgrading in Key Areas of High Energy Consumption Industries published by the Chinese mainland in 2022, points out the need to guide the transformation and upgrading, strengthen technical research, promote mass development and accelerate the elimination of obsolete equipment and practices. Since we have committed to developing our zero-carbon business with a strong focus on technology empowerment from the outset, we have dedicated many resources to technology research and innovation implementation and have progressed rapidly in this area over the years.

The First 10-billion Zero-carbon Technology Fund on the Chinese Mainland

In January 2022, the Group, together with our parent company HKCG, joined IDG Capital to announce the launch of the Country’s first Zero-carbon Technology Investment Fund. With a scale of RMB 10 billion, the first phase of fund raising initially consisted RMB 5 billion, focusing on investments in solar energy, wind energy, powered battery, energy storage, smart energy grid, hydrogen energy, carbon trading and management, as well as other zero-carbon technology-related areas of innovation. This zero-carbon fund is the first zero-carbon technology fund on the Chinese mainland to focus on technology investment and business applications. Together with IDG Capital, we will reach a comprehensive strategic partnership in zero-carbon technology, leveraging our diversified business scenarios to empower the implementation of innovative technology products, which will achieve energy conservation and emission reduction for industrial and commercial customers.

Joint Research Centre for Zero-carbon Smart Park and Virtual Power Plant Technologies

In April 2022, we cooperated with Tsinghua University to set up a Joint Research Centre for Zero-carbon Smart Park and Virtual Power Plant Technologies, seeking to overcome technology holdups as well as to drive the development and technological progress of energy Internet and new power systems. As a vital part of the new power supply system for zero-carbon smart industrial parks, virtual power plants will be able to balance the supply and demand of power, safeguard the supply of energy and ensure the stable development of the energy industry, while also improving the efficiency and achieving better utilisation of clean energy.

Towngas Smart Energy Ecological Platform

Also in April 2022, the Towngas Smart Energy Ecological Platform, jointly developed by Towngas Energy and Tencent Cloud, was officially launched and implemented in Hailing District, Taizhou City, Jiangsu Province. As one of the top 100 industrial zones on the Chinese mainland, Hailing District focuses on the new energy industry. Apart from the construction and application of rooftop distributed photovoltaics, it combines charging and swapping, industrial and commercial energy conservation, user-side energy storage, district energy stations, gas distributed energy stations, smart power distribution networks and virtual power plants. Once fully completed, the project is expected to reduce carbon emissions by hundreds of thousands of tonnes per year. The park uses the Towngas Smart Energy Ecological Platform to collect the measurement and operation data of various projects through the IoT system, achieving visualbased data for the analysis, forecast, enhancement and smart management of the energy data of the industrial park.

Towngas Energy Academy

The Group established the Towngas Energy Academy in July 2022. The Academy’s aim is to attract and lead scientific research in partnership with other scientific institutions to transform breakthroughs in scientific research into achievable commercial projects by offering a practical commercial environment with a focus on smart and green energy. As a research institute established on the Chinese mainland and in line with our development strategies, Towngas Energy Academy will act as the Group’s unified platform for external exchange with the world of technology and research institute, academia and industry. It will also carry out applied research and strategic layouts in the fields of hydrogen energy, energy storage, energy digitalisation, renewable energy, energy conservation and low-carbon innovations. The Academy is located in the Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop, which leverages our geographical advantages and allows us to benefit from the opportunities offered by the Guangdong-Hong Kong-Macao Greater Bay Area as well as the many collaborations among the government, industry, academic and research sectors.

Business Development

In 2022, the Chinese mainland’s economy grew by 3%, which is lower than the previous year. Given repeated outbreaks of the COVID-19 epidemic and the implementation of control measures in cities across the Chinese mainland, social production and consumer markets were restricted. The national consumption of natural gas in 2022 was 366.3 billion cubic metres, representing a year-onyear decrease of 1.7%. However, as the Country continues to implement the goals of achieving carbon peak and carbon neutrality by 2030 and 2060 respectively, natural gas, as one of the cleanest fossil energy sources, will continue to play an important role in the energy mix. Moreover, it has the advantage of being able to be used easily in combination with other clean energy sources. We therefore believe that we have tremendous prospects for development.

The Chinese mainland actively adjusted its epidemic prevention and control policies in 2022, not only strengthening market confidence and reducing potential uncertainty, but also helping to restore the momentum of economic development. At the end of the year, the Chinese government promoted its Outline of the Strategic Plan for Expanding Domestic Demand (2022-2035) , to expand domestic demand and promote economic growth. In 2023, the opening year for implementing the “Chinese-style modernisation”, we expect both industry and commerce to recover gradually. Driven by encouraging market factors, customer demand for natural gas will rise, which will drive the Group’s gas sales growth.

During the year, the Group continued to record a growth in gas sales, with an overall growth in gas sales volume of 5% to approximately 15.25 billion cubic metres. The residential gas sales volume was up 8%, accounting for 20% of total gas sales; industrial gas sales rose 2%, accounting for 51% of the total gas sales volume; wholesale and others gas sales volume increased by 14% against the previous year, accounting for 18% of the total gas sales volume; commercial gas sales volume decreased by 4%, accounting for 11% of the total gas sales volume, as a result of the epidemic.

The total number of customers of the Group reached 15.93 million, representing an increase of 0.84 million customers during the year, with 10,000 new industrial and commercial users and 0.83 million new residential customers. As of 2022, we held a total of 183 city-gas projects (inclusive of corporate reinvestment projects), representing an increase of 7 projects during the year.

Expanding Our Gas Sources

During the year, with the uncertain situation between Russia and Ukraine, international energy prices soared to and lingered at historic highs. Energy self-sufficiency thus became even more important. Affected by the increasing prices upstream, gross margin for the gas business faced downside pressures. Although the year was challenging for the Group, as around 80% of our gas sales are derived from industrial, commercial and wholesale customers, we enjoyed advantages in price pass-throughs. We have been focusing on reducing the adverse impact of energy price fluctuations, and continue to seek stable and lowcost gas sources to ensure both the diversification and stability of our supply sources.

Expanding our gas sources, we, together with our parent company HKCG, redoubled our sourcing efforts in the Southwest, Northwest and Sichuan on the Chinese mainland, also exploring channels to purchase LNG at lower prices during the year. More specifically, our gasification plants in Shanxi and Ningxia have begun operation. Hand-in-hand with these developments, the second phase of the gas storage tank project at the LNG terminal in Tangshan City, Hebei Province, with a total of two 200,000 cubic metre storage tanks, and the shale gas liquefaction project being constructed in Weiyuan County, Sichuan Province, are expected to come into operation by the end of 2023. This will consolidate Towngas Smart Energy’s advantages in the competitive upstream resources market and enhance the peak shaving, emergency storage and supply assurance capabilities of our regional gas enterprises throughout the Group.

City Gas

On the industrial side, the coal-to-gas reform for boilers contributed 3 billion cubic metres of annual gas consumption on a cumulative basis, up by 13% year-on-year. Similarly, the Group’s coalto-gas reform projects for boilers and kilns made steady progress. During the year, we completed coal-to-gas conversion for 3,699 stream tonnes for industrial and commercial customers, representing an increase of 3% over the same period last year. This increase was mainly derived from new boilers.

On the commercial side, we vigorously promoted the development of integrated energy services during the year, adopting our “Gas+” strategy to increase gas revenues. We also actively developed our heating business, tapping into the needs of industrial and commercial gas users for heating and other integrated energy services. We thus continued to provide one-stop services, from cooling and heating, hot water, steam and energy saving to energy efficiency enhancement. At the same time, our strategy for commercial hot water business also shifted, from an equipment sales model to an energy sales model, in line with our heating business development.

Hydrogen Blending in Natural Gas

Against the global backdrop of combatting climate change and the acceleration of energy transition, hydrogen energy has become a highly soughtafter low-carbon clean energy. In March 2022, the National Development and Reform Commission and the National Energy Administration released the Mid- and Long-term Plan for the Development of Hydrogen Energy for the 2021-2035 Period. It proposes targets for the development of hydrogen energy at different stages, and for the first time, defines hydrogen as a green and low-carbon secondary energy source. It also specifies that hydrogen is an important vehicle for energy transition. Natural gas and hydrogen energy have similarities in the industrial chain of transportation, transmission and usage, giving rise to integration opportunities in application scenarios such as power generation and the construction industry. Some provinces have issued local plans for the hydrogen energy industry, which regard technology of hydrogen blending in natural gas as a breakthrough in hydrogen energy storage, transportation and terminal applications. This not only expands the application scenarios of hydrogen energy, but also improves the combustion performance of end equipment and reduces greenhouse gas emissions. We are therefore pleased to note that Weifang Hong Kong and China Gas in North China completed hydrogen blending in gas pipelines under the leadership of the Weifang Municipal Government in accordance with the government’s “Hydrogen Energy for Every Household” project plan. In the South China region, the Foran Energy Mingcheng Integrated Energy Station started trial operations in 2022. It is the latest station after the completion of Nanzhuang Station, the Chinese mainland’s first integration station for hydrogen production, hydrogen refuelling and gas refuelling of natural gas, in 2021.

Extended Business

Under the “Healthy China” policy, the Group, together with our parent company HKCG actively seek opportunities in our extended business. By further improving the quality of existing products and services, providing more diversified integrated solutions and discovering the needs of potential markets, we seek to expand our presence and reach out to more customers.

In the Regulation on the Security Protection of Key Information Infrastructure published in 2021, the Chinese mainland stipulated that key information infrastructure, especially that of major industries like energy, must be secured. At the end of 2022, Towngas Lifestyle released its Towngas Security Chips (TGSE Chips). In a strategic cooperation agreement in Shenzhen with StarFive Technology Company Limited, a leader in RISC-V software and hardware ecology, and Beijing Winicssec Technology Company Limited, a leader in the system and network security for industrial control on the Chinese mainland, the three parties announced the joint provision of industrial internet security products and zero-carbon smart energy solutions based on the RISC-V China-Made Chip. Smart gas meters will be equipped with a builtin TGSE Chip. With this security chip, two-way authentication, secure storage of keys and data, and encrypted transmission of key data with our IoT platform will ensure the safe communication of data. Looking to the future, we will apply our TGSE Chips to different smart products, including the entire industrial chain for our smart kitchens, to allow intelligent security management of gas pipelines.

Additionally, Towngas Lifestyle continues to develop “online + offline” integrated operations, extending its business footprint to focus on the two themes of comfort and health. During the year, the number of members on its internet service platform, Towngas Lifestyle Cloud (TLC), increased to around 15 million. The “Moment+” Community Healthy Lifestyle Experience Centre, which offers one-stop services such as gas payment, installation and maintenance appointment, “healthy home” services, nutrition consultation, health management, cooking classes and health consumption, also extended its business footprint throughout the Chinese mainland.

With regard to the sales of cooking appliances, we continue to boost the sales of our Bauhinia brand. During the year, a number of innovative and smart household products were launched. This includes a new burner which admits air through the surface of the stove during use, differing from traditional burners, which admits air through the bottom of the appliance. It makes the usage process more stable and effectively prevents the flame from accidentally going out. A timing function has also been added to Bauhinia smart appliances. Users can set a timer to turn the appliance off as needed, or set the timer for the use of cold water from the water heater at any time or from anywhere. These functions bring convenience to users while also meeting the market demand.

During the year, Towngas Lifestyle and Beijing Nova Insurance also entered into strategic cooperation. The two parties will establish a joint working group, a professional service and technical team to offer insurance brokerage services to HKCG, our parent company, its members and gas users via Beijing Nova Insurance’s internet platform. Looking forward, starting from comprehensive gas insurance, we will expand our business to cover property insurance and insurance related to the health business. By providing more diversified insurance services, we aim to further enhance the value contribution from a single customer to both increase customer satisfaction and our revenue income.

Mia Cucina, our high-end kitchen cabinet brand, enjoys top recognition both from large developers and residential customers, in view of its quality materials and elegant design. Mia Cucina is planning to extend its services to home spaces beyond the kitchen, covering more comprehensive home design projects and meeting market demand for tailored design.