Recently, Energy South (003035.SZ) participated in the Soochow Securities midterm strategy conference and discussed the following issues with investors:

1. What is the approximate rate of return of the company's distributed photovoltaic projects? A: The company currently requires a general internal rate of return of about 6% for investment in distributed photovoltaic projects, but there may be some differences according to the specific types of projects. For some high-quality customers with overall, cluster development conditions and demonstration leading projects, appropriate reductions in relevant standards will also be considered. As of the end of May 2023, the company has more than 400 distributed photovoltaic projects in operation, with an installed capacity of approximately 2GW. The initial statistics show that the company's average internal rate of return for the distributed photovoltaic projects currently in operation is higher than 6%, while the rate of return for the subsidized industrial and commercial distributed photovoltaic projects put into production before 2021 is generally higher.

2. Does the decrease in component prices affect the rate of return of the company's newly developed distributed photovoltaic projects? A: Although the decrease in component prices helps to reduce the investment cost of photovoltaic power plants, in order to obtain more new projects, the company may share more benefits with customers under the premise of meeting its own investment rate of return, and provide greater discounts on electricity prices to customers. The general internal rate of return required by the company for investment in distributed photovoltaic projects has not changed significantly compared with the period before the significant decline in the cost of photovoltaic components, and is still around 6%, but there may be some differences according to the specific types of projects.

3. What is the business model of the company's distributed photovoltaic projects? A: The company's industrial and commercial distributed photovoltaic projects mainly adopt the "self-generation and self-use, surplus electricity grid" model, and provide electricity to energy-consuming units with priority. The remaining electricity generation is purchased by the local area power grid. For the part of the electricity consumption by the energy-consuming unit, the company negotiates with the energy-consuming unit to determine the electricity price discount rate, and settles according to the discounted electricity price and electricity consumption. The grid-connected part is settled with the power supply bureau according to the benchmark electricity price and the amount of electricity delivered to the grid by the local desulfurization coal-fired generating units. In addition, the company is actively promoting Guangdong, Guangxi, and Hainan's household photovoltaic business, mainly adopting the "full-grid connection" model, and settling according to the local desulfurization coal-fired generating unit's benchmark electricity price for grid connection.

4. Does the company have specific targets for the newly installed capacity of distributed photovoltaics to be put into operation in 2024? A: Driven by the "dual carbon" strategic goal and industry policy support, we believe that the future market space of distributed photovoltaics is still relatively large. On the one hand, the company will continue to focus on high-quality industrial and commercial customers to continue to vigorously expand the industrial and commercial distributed photovoltaic business. As long as they are high-quality projects that meet the company's rate of return requirements, we will do our best to expand them. On the other hand, the company is actively promoting the household photovoltaic business in Guangdong, Guangxi, and Hainan. At present, the household photovoltaic in various provinces in the southern region is in the initial stage, and the cumulative installed capacity is small. It is expected that the household photovoltaic business will become an important support for the company's performance growth in the next few years.

5. Compared with the slightly slower growth rate of distributed photovoltaics, does the company have any plans for the future development of building energy conservation and urban lighting energy conservation business? A: For the building energy conservation business, the company has mature energy-saving renovation technology and rich project implementation experience in the field of building energy conservation. In recent years, the average growth rate of revenue from building energy conservation business has exceeded 20%, which still maintains a high growth rate. In addition, we believe that the future market space of building energy conservation is huge. First, with the introduction of the "dual carbon" target and related energy-saving policies, China will further increase the proportion of green buildings, promote the greening of existing buildings, improve the energy-saving and low-carbon level of buildings, which provides a good policy direction for the rapid development of the building energy conservation business in the future. Second, according to relevant agencies' data, the total stock of buildings in China has exceeded 60 billion square meters, and only a few buildings have adopted advanced energy efficiency improvement measures. In addition, the annual increment of construction area is about 2 billion square meters, of which about 400 million square meters are newly added public buildings (including about 16 million square meters of large public buildings), and the market potential for building energy conservation is huge. Third, from the central to the local level, a series of favorable policies for the energy-saving business have been introduced, injecting strong momentum into the industry's upward development. The central ministries and commissions have issued policies several times to reduce energy consumption, carbon emissions, and achieve green and sustainable development. By improving the energy efficiency standards of new buildings, promoting energy-saving renovation of existing buildings, optimizing energy-consuming institutions, encouraging equipment replacement, and other measures, energy loss is significantly reduced and energy utilization efficiency is improved. The company is full of confidence in maintaining steady and rapid growth of the building energy conservation business in the future. In the future, we will focus on high-quality industries and fields, continuously optimize the layout of energy-saving businesses, first, further strengthen the company's leading role in supporting the National Administration of Government Affairs to carry out energy-saving demonstration projects, and actively promote the landing of energy-saving projects of national ministries and commissions such as the Ministry of Justice, the Ministry of Commerce, and the Ministry of Public Security, as well as governments of municipalities, provinces, and autonomous regions such as Tianjin and Shandong. Second, focus on public institutions and high-quality industries such as medical care, schools, communications, and rail transit, and actively develop comprehensive energy services for national industrial parks around low-carbon/near-zero carbon industrial parks. Third, promote deep cooperation between the company and high-quality group customers such as China Railway, Guangdong Investment, China Shipbuilding, and Southern Airlines, and promote the early landing of projects.

A: The company's distributed photovoltaic projects in the commercial and industrial sector mainly adopt the model of "self-use and surplus electricity access", and give priority to providing electricity to energy-consuming units. The remaining electricity generated is purchased by the local grid. For the electricity consumed by energy-consuming units, the company negotiates with them to determine the electricity tariff discount rate, and settles the payment according to the discounted electricity tariff and electricity consumed. The surplus electricity access is settled according to the benchmark electricity price and electricity amount of desulfurization coal-fired units in the local area. In addition, the company is actively promoting the household photovoltaic business in Guangdong, Guangxi, and Hainan, mainly using the "full access to the grid" model, and settling the payment according to the benchmark electricity price of desulfurization coal-fired units in the local area.

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A: Driven by the "Dual Carbon" strategic goal and supported by industry policies, we believe that there is still a large market space for distributed photovoltaic in the future. On the one hand, the company will continue to focus on high-quality commercial and industrial customers, and vigorously expand the business of commercial and industrial distributed photovoltaics. As long as it meets the company's required rate of return, we will do our best to expand the project. On the other hand, the company is actively promoting the household photovoltaic business in Guangdong, Guangxi, and Hainan. Currently, the household photovoltaics in various provinces in the southern region are still in their early stages with small cumulative installed capacity.The household photovoltaic business is expected to become an important support for the company's performance growth in the next few years.

5. Compared with the slightly slower growth rate of distributed photovoltaics, does the company have any plans for the future development of building energy conservation and urban lighting energy conservation business? A: For the building energy conservation business, the company has mature energy-saving renovation technology and rich project implementation experience in the field of building energy conservation. In recent years, the average growth rate of revenue from building energy conservation business has exceeded 20%, which still maintains a high growth rate. In addition, we believe that the future market space of building energy conservation is huge. First, with the introduction of the "dual carbon" target and related energy-saving policies, China will further increase the proportion of green buildings, promote the greening of existing buildings, improve the energy-saving and low-carbon level of buildings, which provides a good policy direction for the rapid development of the building energy conservation business in the future. Second, according to relevant agencies' data, the total stock of buildings in China has exceeded 60 billion square meters, and only a few buildings have adopted advanced energy efficiency improvement measures. In addition, the annual increment of construction area is about 2 billion square meters, of which about 400 million square meters are newly added public buildings (including about 16 million square meters of large public buildings), and the market potential for building energy conservation is huge. Third, from the central to the local level, a series of favorable policies for the energy-saving business have been introduced, injecting strong momentum into the industry's upward development. The central ministries and commissions have issued policies several times to reduce energy consumption, carbon emissions, and achieve green and sustainable development. By improving the energy efficiency standards of new buildings, promoting energy-saving renovation of existing buildings, optimizing energy-consuming institutions, encouraging equipment replacement, and other measures, energy loss is significantly reduced and energy utilization efficiency is improved. The company is full of confidence in maintaining steady and rapid growth of the building energy conservation business in the future. In the future, we will focus on high-quality industries and fields, continuously optimize the layout of energy-saving businesses, first, further strengthen the company's leading role in supporting the National Administration of Government Affairs to carry out energy-saving demonstration projects, and actively promote the landing of energy-saving projects of national ministries and commissions such as the Ministry of Justice, the Ministry of Commerce, and the Ministry of Public Security, as well as governments of municipalities, provinces, and autonomous regions such as Tianjin and Shandong. Second, focus on public institutions and high-quality industries such as medical care, schools, communications, and rail transit, and actively develop comprehensive energy services for national industrial parks around low-carbon/near-zero carbon industrial parks. Third, promote deep cooperation between the company and high-quality group customers such as China Railway, Guangdong Investment, China Shipbuilding, and Southern Airlines, and promote the early landing of projects.

A: For the building energy conservation business, the company has mature energy-saving renovation technology and rich project implementation experience in the field of building energy conservation. In recent years, the average growth rate of revenue from building energy conservation business has exceeded 20%, which still maintains a high growth rate. In addition, we believe that the future market space of building energy conservation is huge. First, with the introduction of the "dual carbon" target and related energy-saving policies, China will further increase the proportion of green buildings, promote the greening of existing buildings, improve the energy-saving and low-carbon level of buildings, which provides a good policy direction for the rapid development of the building energy conservation business in the future. Second, according to relevant agencies' data, the total stock of buildings in China has exceeded 60 billion square meters, and only a few buildings have adopted advanced energy efficiency improvement measures. In addition, the annual increment of construction area is about 2 billion square meters, of which about 400 million square meters are newly added public buildings (including about 16 million square meters of large public buildings), and the market potential for building energy conservation is huge. Third, from the central to the local level, a series of favorable policies for the energy-saving business have been introduced, injecting strong momentum into the industry's upward development. The central ministries and commissions have issued policies several times to reduce energy consumption, carbon emissions, and achieve green and sustainable development. By improving the energy efficiency standards of new buildings, promoting energy-saving renovation of existing buildings, optimizing energy-consuming institutions, encouraging equipment replacement, and other measures, energy loss is significantly reduced and energy utilization efficiency is improved. The company is full of confidence in maintaining steady and rapid growth of the building energy conservation business in the future. In the future, we will focus on high-quality industries and fields, continuously optimize the layout of energy-saving businesses, first, further strengthen the company's leading role in supporting the National Administration of Government Affairs to carry out energy-saving demonstration projects, and actively promote the landing of energy-saving projects of national ministries and commissions such as the Ministry of Justice, the Ministry of Commerce, and the Ministry of Public Security, as well as governments of municipalities, provinces, and autonomous regions such as Tianjin and Shandong. Second, focus on public institutions and high-quality industries such as medical care, schools, communications, and rail transit, and actively develop comprehensive energy services for national industrial parks around low-carbon/near-zero carbon industrial parks. Third, promote deep cooperation between the company and high-quality group customers such as China Railway, Guangdong Investment, China Shipbuilding, and Southern Airlines, and promote the early landing of projects.

For urban lighting energy-saving business, due to the expiration of the company's partially stock projects' energy management contracts and the company's cautious development of new projects based on risk assessment, the number and scale of newly invested and operated projects have relatively small growth. However, the urban energy-saving business accounts for a small proportion of the company's overall business. In the future, the company will continue to specialize in smart lighting business, steadily promote a batch of urban-level smart street lamp projects, and continuously improve the professional level and market influence of the lighting business.

Q6. What is the ratio of self-owned funds to loans for the projects invested by the company?

A: The proportion of self-owned funds used by the company for the developed projects is around 30%, and the proportion of bank loans is around 70%. The loan term for the projects is generally 8-15 years.

Q7. What are the specific plans for the company to develop into a load aggregation merchant in the future?

A: The company has already completed more than 100 distributed source and load aggregation platform projects and over 180 megawatts in photovoltaics and air conditioning load access. It has also successfully registered as a load aggregation merchant at the Guangdong Power Exchange. Next, the company will give full play to its advantages as an integrated energy business investment, construction, operation, and service provider. It will actively promote innovative design and implementation of source-load aggregation service business models, continue to promote the development and upgrading of core functions of the energy digital management platform and load aggregation operation platform, promote access and aggregation of various distributed resources, open up key nodes between the user side and the supply side, and actively explore and promote load aggregation business.