Cinda Securities released a research report stating that the fundamentals of the utilities sector are expected to remain stable in 2026, with market attention shifting to undervalued sectors for potential catch-up opportunities. High-dividend assets, such as hydropower operators, offer long-term investment value due to their scarcity, growth potential, and regulatory advantages.
With the integration of renewable energy into the market and the expansion of spot trading, the importance of forecasting and optimization services has significantly increased. The ability to accurately predict weather, electricity prices, load, and market demand will provide market participants with a competitive edge in trading and operations.
Key insights from Cinda Securities include: - **Power Sector Review**: China's power market reform has entered its latter phase, with spot market expansion and power source participation becoming key themes. The implementation of the "136" policy marks the full entry of renewable energy into the market. However, differences in mechanisms between existing and new projects led to a surge in installations in H1 2025. While most regions achieved a smooth transition, policies on electricity volume allocation varied. Eleven provinces, including Shandong and Yunnan, completed their first auctions for new projects, with results ranging from near upper limits (Shanghai, Jiangxi, Yunnan, Tianjin, Xinjiang) to lower limits (Gansu). - **Spot Market Developments**: The "394" policy accelerated nationwide spot market coverage, achieving near-complete provincial coverage by November 2025. This sets the stage for broader adoption. - **Industry Outlook**: As supply-demand dynamics ease, spot prices increasingly influence long-term contracts, highlighting the value of stable and scarce power sources. Coal-fired power faces large-scale deployment amid weak demand, leading to a looser supply-demand balance. This shift has driven down spot prices since 2022, compounded by falling energy costs and rapid renewable capacity growth. With long-term contracts dominating trading, spot price volatility guides negotiations. Further easing in H2 2025 and 2026, coupled with local governments' push for lower tariffs, may sustain downward pressure on prices. However, prices are expected to find support near the 20% lower limit, while regions with high long-term contract premiums could face corrections. - **Investment Opportunities**: The peak of power investment may have passed, with asset integration emerging as a key theme. Post-2025, state-owned enterprise reforms are likely to prioritize主业 focus, asset optimization, and energy transition. Among power sources: - **Thermal Power**: Facing cost pressures and tariff declines, integrated coal-power players with high dividends are recommended. Capacity tariffs may offset some revenue losses. - **Renewables**: Auction results for new projects were mixed, with only Shanghai, Anhui, Yunnan, and Xinjiang achieving favorable outcomes. Policy updates (e.g., "650," "1192," "1360") aim to streamline green power procurement and absorption, potentially entering a new phase. - **Hydropower & Nuclear**: Limited remaining hydropower potential (mainly in Tibet) and low market participation contrast with nuclear power's rapid growth and increasing market exposure, positioning it as a major market participant in the coming years.
**Risks**: Lower-than-expected power demand; sharper tariff declines; reduced thermal utilization; renewable overcapacity straining absorption and prices; slower market reform progress.
Comments