In the next phase of power reform, efforts will be made to accelerate the construction of inter-provincial and spot markets for electricity in terms of electricity, further increasing the proportion of market electricity, and the national unified power market system is expected to be preliminarily established by 2025.
Today, Zhongguo Yinhe Securities released a research report stating that the market is concerned that the weak economic recovery will drag down the enthusiasm for the active reform of power in various provinces, but since the beginning of the year, the reform policies have been intensively introduced, and the symposium between enterprises and experts in May is an important signal of the central government's determination to promote power reform. The next step of power reform is expected to exceed expectations, focusing on accelerating the inter-provincial and spot market construction of electricity and further increasing the proportion of market electricity. In terms of electricity pricing, we should improve the multidimensional value system such as regulatory value and green environment value, promote the safe and stable operation of the new power system, and transform it into a green and low-carbon one.
Retrospect of the first half of 2024: The new energy consumption problem forces the speed-up of power reform.
From the beginning of the year to June 14, the rise and fall of thermal power/hydropower/nuclear power/wind power/photovoltaic power indexes were 25.4%/21.1%/37.2%/1.7%/-19.1%, respectively. The sharp rise of thermal power is mainly due to the decline in coal prices and the improvement in profitability. The sharp rise of hydropower and nuclear power is mainly due to high dividends and high stock dividends highlighting the defensive value. In addition, water improvement is also an important catalytic factor. The weak trend of new energy reflects the market's concern about the decline in on-grid electricity prices of new energy. Since 2024, the newly installed new energy under a high base continued to grow rapidly, with an increase of 77GW from January to April, a year-on-year increase of 23%, and a significant decline in wind and solar utilization rates nationwide. Zhongguo Yinhe Securities predicts that the problem of new energy consumption will force the acceleration of power reform.
Thermal power: Profitability continues to improve, and power reform promotes the stability of performance improvement and valuation reshaping.
Since this year, coal prices have continued to fluctuate and fall beyond expectations. It is expected that the coal supply will be further loosened throughout the year and the performance of the thermal power sector will continue to improve in 2024. Under the new power system, the value of supply guarantee such as thermal power peak regulation and frequency regulation will continue to increase. According to Zhongguo Yinhe Securities, by 2030, about 50% of thermal power revenue will come from capacity electricity prices and auxiliary services, which is less sensitive to coal and electricity prices, and promotes the stability of profitability. At present, the PB average of the thermal power sector is 1.24x. With the continuous improvement of profitability stability, the PB of the sector has room to repair compared with the nuclear power 1.97x and hydropower 2.83x.
New energy: Accelerate marketization, short-term power prices are under pressure but the long-term installation space is large.
Recently, the cumulative installed capacity of new energy has reached 1.13 billion kilowatts, accounting for 37.5%. Under the background of energy transformation, new energy will become the main source of electricity, and it is expected that the cumulative installed capacity of new energy will exceed 1.7 billion kilowatts and 3 billion kilowatts in 2025 and 2030, respectively. With the improvement of the green environment value market system, green electricity and green certificate transactions have increased significantly, and the green environment value will directly benchmark the carbon market price. New energy can increase profitability by recycling excess green electricity premiums through the environmental market.
Investment strategy: In the short term, it is recommended to focus on the thermal power sector with policy catalysis, continuous improvement in performance, and room for improvement in valuation; In the long term and low-risk preference, it focuses on the nuclear power and hydropower sectors, and also strategically lays out the new energy sector on dips. Pay attention to individual stocks such as Huaneng Power International, Inc. (600011.SH), Anhui Wenergy (000543.SZ), Sichuan Chuantou Energy (600674.SH), China Yangtze Power (600900.SH), and China National Nuclear Power (601985.SH).
Risk warning: The risk of lower-than-expected installed capacity; the risk of high coal prices; the risk of a reduction in on-grid electricity prices; and the risk of intensified industry competition, etc.