Cnstock.com has learned that Guosen Securities released a research report stating that with the continuous increase in the penetration rate of new energy in the power system, the fluctuation and randomness on the generation side continue to strengthen. The electricity load must match the characteristics of the generation side, and the electricity side will gradually transition from 'on-demand electricity' to 'price-based electricity.' The new models of electricity side power trading, virtual power plants, demand side response, etc., have made users and distribution networks have complex, high-frequency energy, data, and command interactions, reconstructing the logic of distribution network operation. The distribution transformer is an important link to improve energy efficiency and equipment updating. Currently, the high-efficiency coverage rate is less than 10%. With an estimated 10% increase per year, the annual market space is expected to exceed 40 billion yuan. Communication is the 'nerve system' of the distribution network, and the emergence of new elements and models is expected to drive the demand for communication modules, chips, gateways, and other devices.

Guosen Securities' main points are as follows:

Distribution network changing trends: New elements and new models reshape the underlying logic.

The continuous increase in the share of distributed new energy installed capacity and generation, the continuous increase in the penetration rate of new energy vehicles driving the rapid development of charging facilities, and the rapid development of industrial and commercial energy storage driven by peak-valley price differences. The access of the above 'new elements' makes the energy flow and information flow of the distribution network change from the traditional 'one-way transmission' to 'two-way interaction,' bringing huge challenges to the power balance, scheduling, protection, safety, stability, equipment management, and data interaction of the distribution network.

Since 2021, industrial and commercial users have successively entered the market, and the proportion of market-based trading volume continues to increase. With the continuous increase in the penetration rate of new energy in the power system, the fluctuation and randomness on the generation side continue to strengthen. The electricity load must match the characteristics of the generation side, and the electricity side will gradually transition from 'on-demand electricity' to 'price-based electricity.' Virtual power plants, as an important way of demand-side response, have been successively demonstrated in various provinces since 2021. The new models of electricity side power trading, virtual power plants, demand side response, etc., have made users and distribution networks have complex, high-frequency energy, data, and command interactions, reconstructing the logic of distribution network operation.

Review of the historical investment of distribution networks: Objective demand and economic revitalization jointly drive, currently at the beginning of the third cycle.

The development of China's distribution network can be divided into three cycles: 1998-2012, 2013-2019, and 2023 to present. In the first cycle, two rounds of rural network transformation basically solved the problem of electricity for the population without electricity. The second cycle, driven by urbanization, improvement of power supply reliability, and stable growth, together with the third round of rural network transformation, ushered in an explosive growth in investment. From 2013 to 2016, the CAGR of distribution network investment reached as high as 22%, and the proportion of grid investment increased from 44% to 57%.

Since 2023, a series of heavyweight documents, such as the 'Guiding Opinions on Implementing the Consolidation and Improvement Project of Rural Power Grids', the 'Guiding Opinions on the High-quality Development of Distribution Networks in the New Situation', the 'Action Plan for the High-quality Development of Distribution Networks', and the 'Implementation Plan for Large-scale Equipment Updating in Key Energy Fields', have been successively issued, and the distribution network is expected to usher in a new cycle of prosperity. From the perspective of driving factors, this round will be jointly driven by the objective demand caused by the construction of a new type of power system and the demand driven by economic growth.

Future investment direction of distribution networks: driven by policies and demands, giving rise to multidimensional demands according to local conditions.

Since the beginning of the year, the top-level design documents for distribution network and rural network transformation have been successively implemented, requiring the distribution network in 25 years to have the capacity to access around 0.5 billion kilowatts of distributed new energy and 12 million charging piles. By 2035, the modern rural power grid will be basically completed, and the renovation of old power grid equipment will be accelerated to improve the disaster prevention and reduction capabilities of the distribution network. Southern Power Grid stated that the scale of equipment updating investment will reach 195.3 billion yuan from 2024 to 2027, of which 100 billion yuan will be used for rural network transformation, striving to achieve a 52% increase in investment scale in 2027 compared to 2023. State Grid raised the annual budget for grid investment in the middle of the year, with the total grid investment exceeding 600 billion yuan for the first time in a year. In June 2024, the new version of the industry standard 'Technical Guidelines for Distribution Network Planning and Design' will be officially implemented, adding technical requirements for access of distributed power sources, charging and swapping facilities to the secondary systems of distribution networks, and increasing technical requirements for microgrids, charging and swapping facilities, and new energy storage access.

There are significant differences in the network structure, load characteristics, level of intelligence, and penetration rate of distributed energy in distribution networks in various regions. The main contradictions and problems are different, and distribution network transformation needs to be tailored to local conditions. Economic developed regions mainly in East China and South China have carried out demonstration applications of new technologies and equipment. 'Four Yeses' is an important direction for the future development of the distribution network, and solutions centered around the integration of low-voltage substations and terminals are expected to become an important means, with a national market space for stock transformation estimated at 50-65 billion yuan.

At present, medium-voltage distribution networks mainly adopt three-stage current protection, and in the future, current differential protection will need to be introduced to improve the accuracy and timeliness of protection. The degree of automation of regional distribution switches in State Grid is about 34%, and the market space for transformation is about 60 billion yuan. Distribution transformers are an important link in achieving energy efficiency improvement and equipment updating. Currently, the coverage rate of high-efficiency distribution transformers is less than 10%, and it is estimated that the average annual market space will exceed 40 billion yuan, assuming a 10% increase each year. Communication is the 'nervous system' of the distribution network, and the emergence of new factors and new models is expected to drive the demand for communication modules, chips, gateways, and other equipment.

The bidding situation and market pattern analysis of distribution networks: the sources of demand are relatively scattered, and listed companies still occupy an important position.

The main source of bidding for distribution network equipment in State Grid comes from provincial bidding, while in Southern Power Grid, it mainly comes from unified bidding. The average annual bidding amount for State Grid is about 50-70 billion yuan, and the average annual bidding amount for Southern Power Grid is about 8-10 billion yuan. Among them, transformers account for 35%-40% of the total, complete equipment accounts for 45%-50%, and pole-mounted circuit breakers account for 8%-10%. In terms of regions, the major provinces (cities) for distribution network procurement by State Grid include Jiangsu, Shanghai, Henan, Zhejiang, Shandong, and Hunan, with the top ten provinces accounting for 65% of the total procurement amount. The distribution network equipment procurement of Southern Power Grid mainly comes from Guangdong Province, accounting for nearly 50% of the total. The competition pattern of main distribution network products is relatively scattered, but listed companies still occupy an important position, with listed companies and their subsidiaries accounting for about 70%-80% of the bidding amount of distribution network equipment in State Grid and Southern Power Grid in 2022-2023.

Summary of listed distribution network companies

Distribution network equipment companies can be divided into regionally advantaged companies and comprehensive companies. Regionally advantaged companies focus on specific regions and have relatively single products. However, in recent years, leading companies have actively promoted expansion outside their advantageous regions and product lines. Typical companies include Mingyang Electric (301291.SZ), Wangbian Electric (603191.SH), Beijing Creative Distribution Automation (002350.SZ), Shijiazhuang Kelin Electric (603050.SH), and Shanghai Holystar Information Technology (688330.SH). Comprehensive companies are generally large-scale electrical equipment companies that cover various aspects such as internal/external network, mains/distribution network, and primary/secondary. Typical companies include Dongfang Electronics (000682.SZ), Nari Technology (600406.SH), Beijing Sifang Automation (601126.SH), State Grid Yingda (600517.SH), XJ Electric Co., Ltd. (000400.SZ), and Ningbo Sanxing Medical Electric (601567.SH).

Risk warning

The total investment and pace of distribution network are lower than expected; the growth rate of distributed energy installation is lower than expected; the growth rate of charging station inventory is lower than expected; the economic growth rate and electricity consumption growth rate are lower than expected; industry competition intensifies, and profitability is lower than expected.