CITIC SEC released a research report stating that the US-Iran conflict has exposed vulnerabilities in the energy supply chain. As a cornerstone of China's energy security strategy, the value of the power sector is expected to be reassessed. Against a backdrop of improving policy support and expectations that electricity prices have bottomed out ahead of schedule, the power sector is poised for a dual recovery in fundamentals and valuations. The report recommends nuclear power leaders benefiting from normalized unit approvals and potential guaranteed mechanism-based tariffs; hydroelectric leaders with high-quality underlying assets and stable dividends; integrated coal-power companies possessing upstream resource advantages that effectively hedge against fuel price fluctuations; and H-share green power and H-share thermal power companies offering attractive dividends at low valuations. CITIC SEC's main views are as follows:
The escalating US-Iran conflict has expanded to target energy infrastructure. Since the conflict began, the blockade of the Strait of Hormuz and attacks on Qatar's oil and gas production bases have reduced Middle Eastern oil exports by approximately 61%. Tightening oil and gas exports from the region have driven international prices higher, with Brent crude exceeding $100 per barrel, raising global concerns about energy security and supply stability.
China's diversified energy consumption structure keeps overall external dependency risks manageable. According to National Bureau of Statistics data, China's total energy consumption in 2025 is projected to be about 6.17 billion tons of standard coal, with coal, oil, natural gas, and primary electricity & others accounting for 51.4%, 18.2%, 8.7%, and 21.7% respectively. This forms a diversified energy supply pattern based on the resource endowment of "rich coal, poor oil, and little gas." Data from the General Administration of Customs and the National Energy Administration indicate that China's external dependency rates for coal, crude oil, and natural gas in 2025 were 10%, 76%, and 40% respectively. Despite high dependency on external oil and gas resources, energy security risks remain within a controllable range through electricity substitution and energy structure optimization.
Energy transition has achieved significant results, but challenges remain in infrastructure construction and advanced manufacturing development. Guided by the "dual carbon" goals, China continues to promote the construction of power sources like green and nuclear energy, with strong momentum in clean energy development. Data from the China Electricity Council shows that by 2025, the share of non-fossil energy installed capacity nationwide rose to 60%, and its share of electricity generation increased to 35%, highlighting notable progress in energy structure transformation. However, challenges persist: insufficient ultra-high-voltage transmission channels and supporting energy storage facilities in Northwest China create difficulties in absorbing green power, dampening investment enthusiasm; advanced manufacturing areas like fourth-generation nuclear technology and controllable nuclear fusion still require continuous R&D investment. Overall, while China's energy transition is advancing rapidly, sustained capital investment and policy support are needed to drive breakthroughs in related sectors.
Amid the imperatives of ensuring energy security and advancing the energy transition, electricity prices are expected to benefit from policy support, leading to an earlier-than-expected bottoming out. The power industry is currently in a phase of loose supply and demand due to intensive capacity commissioning and the push for power market reform, resulting in significant declines in market-based electricity prices and substantial pressure on sector profitability. However, as a stabilizer for energy supply, electricity plays a crucial role in national energy security and is a key driver for achieving the dual carbon goals on schedule. In March 2026, Liaoning province introduced a mechanism-based tariff policy for nuclear power, providing reasonable returns for nuclear plants within the province, reflecting the government's willingness to provide policy support. It is anticipated that other provinces will successively introduce similar policy safeguards, prompting electricity prices to bottom out and rebound ahead of the industry's supply-demand balance point. This would boost investment enthusiasm in the power sector and support its long-term, stable development.
Risk factors include electricity demand falling short of expectations; significant declines in market trading prices; fuel costs rising beyond expectations; increased risks associated with new energy integration; and slower-than-expected progress in power system reform.
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