Deal focus: PCG brings light to industrial use cases

PCG Power emerged because three investors – each with deep roots in mobility and electrification – trying and failing to find an appropriate existing China-based business specialising in distributed power.

Rockets Capital was founded by a former Hony Capital dealmaker in conjunction with the leadership of local electric vehicle (EV) maker Xpeng; Nio Capital was formed by the founder of rival EV business Nio; and one of Eastern Bell Capital's co-founders also originated warehouse operator turned logistics and infrastructure investment manager GLP. They regularly exchange views on key investment themes.

A common interest in distributed photovoltaic (PV) power prompted Rockets to suggest that local property developers Poly Group and Country Garden launch their own PV unit aimed at commercial and industrial use cases and fill a gap in the market. They did, and the three investors participated alongside Poly Group and Country Garden Venture Capital in a CNY 500m (USD 70m) Series A earlier this year.

"In PV power generation, large power plants are typically backed by central enterprises, leaving little room for venture capital investment. Meanwhile, in distributed PV, several leading players such as Chint Anneng, Skyworth and Trina Solar have emerged in the household PV segment, with relatively high valuations," said Junping Yin, a partner at Eastern Bell.

"The remaining category – distributed PV built for commercial and industrial projects – is still very scattered and less standardized, with a low penetration rate. This is where the opportunity lies."

Eastern Bell Capital recently re-upped in a CNY 500m Series A extension for PCG. It was joined by fellow Series A backers Poly Capital, County Garden Venture Capital, and Huamei International, as well as new investors such as Hua Ventures, SenseTime Capital, Sunwoda Electronic, and Yuneng Technology.

PCG deliberately sought investors that could contribute relevant industry resources and expertise. Shanghai-listed Yuneng and Shenzhen-listed Sunwoda specialise in PV and energy storage, respectively. Nio and Xpeng not only understand EVs but also the internet-of-energy business model. By comparison, Eastern Bell sees itself as more from the financial investor side.

Formally launched last year, PCG is now led by Ru Jin, previously CEO of Shanghai-listed Jinko Power. The goal is to become China's largest energy management service provider for commercial and industrial sites, installing 5 gigawatts of PV power capacity within three years.

Poly and Country Garden are logical sponsors for the business by virtue of their supply chains. They work with power-hungry manufacturers of construction materials and are responsible for populating extensive land banks. The economic efficiency of locating PV projects on the rooftops of factories that directly use the electricity generated is plain to see.

PCG's first customer is Opple Lighting, a Shanghai-based supplier of lighting products that has worked with Poly and Country Garden for years. It is also one of Poly Capital's LPs. In April, PCG started installing PV on 80,000 square metres of rooftops on Opple's plants. Projected annual output is 11.1 megawatts.

Yin describes it as a build-operate-transfer (BOT) project. Most of the power will be used by Opple, with the rest sold to the market. Not only does Opple create an electricity source that is typically 30% cheaper than conventional power, but the company can also further its environment, social and governance (ESG) agenda and avoid carbon taxes on certain exports because they are produced using green energy.

"For manufacturing enterprises, the consumption rate can be up to 80% which brings higher investment return," said Yin, who estimates the general IRR on these projects is in the 8%-15% range.

PCG is also keen to instal solar panels in the Poly and Country Garden's residential developments, which house more than 30m people, where the power can be used for EV charging. Beyond that, it wants to explore the construction of a virtual grid that can manage the trading of unused solar power. Yin believes supply chain efficiency rather than core PV technology represents the company's main competitive edge.

"This is a typical supply chain innovation concept. PCG integrates upstream suppliers of photovoltaic modules, brackets, and other components with downstream scenarios – such as roofs of commercial and industrial buildings – leveraging capital from financial institutions to build these distributed power stations efficiently," he explained. "It generates returns through the production of electricity."

Yin also regards supply chain-oriented business models as fundamentally different from product-oriented start-ups that make up China's investment mainstream. There is no need to focus on branding and differentiation in appearance, function, and iteration; customers prioritise cost and practicality.

New energy remains a popular investment theme in China, with valuations rising on the back of a perceived halo effect from the country's commitment to curbing emissions and achieving carbon neutrality. From semiconductors to solar panels to battery storage, start-ups are raising bumper rounds of CNY 1bn or more, often at the Series A and B stages.

Once again, Yin makes the case for distinction. Most of these companies are essentially upstream manufacturers; PCG focuses on the application and management side.

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• Topics
• Greater China
• Cleantech
• Early-stage
• Infrastructure
• Real estate
• China
• renewable energy
• Cleantech
• Rockets Capital
• Nio Capital
• Eastern Bell Venture Capital