"Shell has made a decision to withdraw from its electricity value chain related businesses in China, including power generation, trade, and marketing, starting from the end of last year."
On April 29th, a spokesperson for Shell (China) made the above statement to Interface News.
Recently, Jiangsu Electric Power Trading Center announced that it has accepted the application of Shell Energy (China) Co., Ltd. to voluntarily cancel its market registration; The Guangdong Power Trading Center also issued a document stating that it has accepted its voluntary withdrawal from the market application.
Shell Energy (China) Co., Ltd., established in 2014, was one of the first foreign-funded companies to register and participate in the Chinese electricity trading market. It participated in electricity trading in Jiangsu and Guangdong provinces of China around 2020.
Shell's withdrawal from the Chinese electricity market is not only related to the company's slowing pace of energy transformation, but also to the fierce competition and difficult profitability in the Chinese electricity sales market.
Shell (China) spokesperson told Interface News that Shell's decision to withdraw from the Chinese electricity market is consistent with the information released on Capital Market Day last year. Shell will selectively invest in electricity, focusing on realizing value from its electricity investment portfolio.
In January 2023, Wael Sawan replaced Ben van Beurden as the new CEO of Shell. Sawangyuan serves as the head of Shell's integrated natural gas, renewable energy, and energy solutions. After taking office, Wei Siwang redefined Shell's energy transformation path.
Last year, Shell emphasized the three principles of "performance, discipline, and simplification" on Capital Markets Day. Under this guiding principle, Shell focuses more on its areas of expertise. This is the first time since Shell proposed its "Empowering Progress" business strategy in 2021 that it has signaled a slowdown in its energy transformation pace to the outside world.
In March of this year, Shell released its first energy transformation strategy update since launching its "Empowering Progress" business strategy in 2021. In this strategic update, Shell has lowered its carbon emission targets and adjusted its power business development strategy.
In the new version of the energy transformation strategy, Shell stated that based on the shift in valuing value growth over quantity growth in the power sector, the company will focus on specific markets and segmented markets. This includes selling more electricity to commercial customers and reducing electricity sales to retail customers.
Shell has designated its electricity business areas in Australia, Europe, India, and the United States, but does not include China. It will establish electricity businesses, including renewable energy, in these countries.
The accelerated development of Shell's power business began in 2019. At that time, Shell stated that its annual oil production had reached its peak in 2019, and it was expected that its total oil production would decrease by 1-2% annually before 2030. To this end, the company proposes a new goal - to transform into the world's largest power company.
In October 2019, Wei Sile, Executive Director of Shell's Natural Gas Integration and New Energy Business, stated in an interview with Interface News and other media that the transition to electrification is closely related to global energy development trends.
In 2021, Shell proposed the "Empowering Progress" business strategy, setting a target of reducing absolute emissions by 50% by 2030, with 2016 as the benchmark year; Renewable energy electricity has been identified as a key focus for transformation.
However, with the outbreak of the Russia-Ukraine conflict and the sequelae of the rapid energy transformation, the price of traditional fossil energy such as oil and natural gas will rise sharply in 2022, and energy security will become a priority.
Last year, international oil companies began to gradually return to rationality by setting aggressive energy transformation goals and reducing investment in traditional oil and gas businesses. They re strengthened their upstream business with the goal of establishing a safe, clean, and affordable global energy system, and orderly developed traditional oil and gas and new energy businesses.
In 2023, Shell stated that its low-carbon strategy will still recognize the role that oil should play. Meanwhile, Shell does not intend to become one of the world's largest electricity producers.
In addition to adjusting its own development strategy, Shell's electricity sales business in China has not been smooth, which is also one of the reasons for its exit from the market.
In 2015, China launched a new round of electricity reform, with the relaxation of the electricity sales side becoming one of the highlights. Previously, electricity users mainly purchased electricity from power grid companies, but after the release of the electricity sales side, users can directly purchase electricity through the electricity sales companies. In other words, after the electricity reform, electricity selling companies can become intermediaries by buying electricity from power plants (power generation companies) and then selling it to electricity users.
Selling electricity is considered a trillion yuan "cake" by the market, and various types of capital have entered. At the beginning of the electricity sales side reform in 2016, there were less than 300 electricity sales companies that were publicly announced by the power trading center, but more than 3000 were registered with the industrial and commercial authorities. By 2018, the total scale exceeded tens of thousands.
Jiangsu and Guangdong provinces became pilot units for electricity sales reform in 2017. In 2018 and 2019, Jiangsu became the largest electricity trading market in China for two consecutive years.
At this point, Shell has also chosen to enter the Chinese electricity market. Looking back now, this is not a good time.
After the opening up of China's electricity sales market, competition has become extremely fierce, and many electricity sales companies have engaged in price wars. As the phenomenon of electricity surplus in previous years has been alleviated, the price difference between market prices and benchmark prices continues to narrow, squeezing the profit margins of power selling companies.
In 2021, there was a rare shortage of electricity supply and demand nationwide, coupled with rising coal prices leading to rising costs for power generation companies. Many power generation companies suffered more losses, and the transaction price difference in the electricity sales market was further squeezed.
As a result, electricity sales companies have incurred significant losses. The Guangdong Power Trading Center released the "Guangdong Power Market 2021 Half Year Report" in August 2021, which showed that in the first half of that year, the overall loss of 161 power selling companies was 88.2%, with a net loss of 310 million yuan. In 2020, its overall loss area was only 2%, with a net profit of 2.44 billion yuan.
During this period, Shell's electricity sales trading business in China was not smooth. According to data from Jiangsu Power Trading Center, Shell Energy (China) Co., Ltd. registered with Jiangsu Power Trading Center on February 17, 2020, but had not yet started selling electricity by the end of 2021. In 2022, in order to resume its electricity sales business, the company once again disclosed information on the trading center. But no transaction details have been found yet.
In March 2021, the National Development and Reform Commission and the National Energy Administration issued a new "Management Measures for Power Selling Companies", strengthening the dynamic and risk management of power selling companies, and implementing mandatory exits for power selling companies that have not engaged in power selling business in any administrative region for three consecutive years. During this period, many smaller electricity sales companies also chose to voluntarily withdraw.
According to data reported by First Financial Daily, in 2018, there were over 10000 registered electricity sales companies nationwide, but by 2021, the number had decreased to around 5000.
With the tightening of policy management and the improvement of profits for powerful electricity sales companies, the pressure faced by smaller or less experienced electricity sales enterprises will intensify.
Last year, the profitability of the electricity sales market began to improve. In August 2023, the Guangdong Power Trading Center released a report showing that in the first half of last year, a total of 130 power selling companies in Guangdong had accumulated profits and 30 had losses. The overall profit of the power selling companies was 81.2%.
During the period, the average revenue per kilowatt hour was 9.5 millimeters per kilowatt hour, with sales companies with power generation backgrounds earning 7.7 millimeters per kilowatt hour, sales companies with grid backgrounds earning 13.5 millimeters per kilowatt hour, and independent sales companies achieving 12.9 millimeters per kilowatt hour.