Reforms are bound to accelerate. As a baseload power source with a large scale of operation, good coverage, and strong adjustment capacity, thermal power is on the left side of the consumption costs of the whole society.
The Zhitong Finance App learned that GF Securities released a research report saying that reforms are bound to accelerate. As a baseload power source with a large operating scale, good coverage, and strong adjustment capacity, it is on the left side of the consumption costs of the whole society. In the future, the ROE center is expected to remain at 10% through fixed costs (depreciation) based on capacity electricity prices, variable costs (coal prices), and auxiliary service response adjustment costs (consumption). An example is that Huaneng International's Q1 capacity+auxiliary services revenue is already about equal to the overall profit of thermal power. Whether coal prices have been stable since April, auxiliary service rules have been issued in May-August, or electricity prices have been signed since August, the core is to verify this logic. Accelerated reforms mean that the market is accelerating. Furthermore, if policies are straightened out quickly, the green power profit model is also worth looking forward to, and grid investment is also worth looking forward to.
Looking at the power system reform from the “breaking wall” of the system, the core grasps the consumption problem caused by the installation of green electricity
In the context of carbon neutrality and energy security, the share of green electricity generation in China continues to rise (from 3.3% to 15.5% in the past 10 years). However, due to the high daily and intraday variability of new energy power generation, the stability of the power system is being challenged. Problems such as squeezing the usage hours of thermal power, increasing demand from power grids for regulating resources such as thermal power and energy storage, urgent UHV construction, and negative regional electricity prices occur from time to time. The reform of the electricity system is imminent, and a symposium of enterprises and experts on Thursday will speed up the reform. GF Securities believes that the core problem of the power system is the consumption problem. Clarification of the electricity price mechanism and promotion of marketization are the solutions. In the short term, a price mechanism was introduced using falling power generation costs, and in the long term, price transmission was achieved through market-based transactions. The power system is expected to “break the wall” and return to stability.
The Pyramid of Electricity System Reform: Grasping the Reform Progress of Promoting Electricity Prices and Then Promoting Full Marketization
Guangfa Securities believes that comprehensive power system reform requires the following steps: (1) First, it is necessary to reflect the various values of each power source (such as environmental value, adjustment value, base load value, power generation cost, etc.). Therefore, seeing that capacity electricity prices reflecting the release of coal power were implemented in November last year, electricity price programmatic policies for auxiliary services reflecting adjusted values were introduced in February of this year, and timeshare electricity prices will gradually be introduced in the future; (2) The second is to improve the market-based mechanism: after the price mechanism is perfected, the medium- to long-term market, spot market, and auxiliary service markets will gradually be implemented. After launch More trading entities will continue to be introduced; (3) Ultimately, there is a constant equation for electricity prices: that is, the value of all types of power sources should be reflected, such as “green electricity price+adjustment cost” linked to “thermal power price+environmental cost”.
GF Securities has proposed that 2023 looks at the reform context of capacity electricity prices, 2024 looks at ancillary services+timeshare prices+coal-electricity linkage, and 2025 looks at environmental premiums and market-based transactions.
Investment advice
Utilization accelerates changes in the value of electricity. Thermal Power focuses on Zhejiang Electric Power (600023.SH), China Resources Electric Power (00836), high dividend Huadian International (600027.SH), Shenneng shares (600642.SH), Inner Mongolia Huadian (), high growth China Electric Power (US), Waneng Electric Power (000543.SZ), and Huaneng International (Sichuan); Hydropower focuses on Yangtze River Electric Power (Singapore), Guiguan Electric Power (), and SDIC (600863.SH 600795.SH 600011.SH 600900.SH 600236.SH 600886.SH), Sichuan Investment Energy (600674.SH); Nuclear Power focuses on China's nuclear power (601985.SH); Green Power focuses on Funeng shares (). 600483.SH
Risk warning: reforms fall short of expectations; coal prices have risen more than expected; Green Electric's installation progress is low.