CITIC SEC has released a research report stating that Liaoning Province's introduction of a mechanism-based electricity pricing policy for nuclear power has demonstrated a significant effect in stabilizing returns for nuclear power within the province. Other coastal provinces with nuclear power are expected to follow suit subsequently. The trend of using policy intervention to stabilize returns is anticipated to extend to other regions and other power sources, indicating a shift in the government's stance from lowering generation-side electricity prices towards ensuring reasonable returns for generators. The bank's analysis suggests that while the market supply-demand equilibrium point might occur around 2028, policy support is expected to help the industry's electricity price bottom appear earlier. This will contribute to an improved fundamental outlook for the power sector and support an overall expansion of valuations. The main viewpoints of CITIC SEC are as follows:
The launch of Liaoning's nuclear power mechanism pricing demonstrates notable effectiveness in stabilizing returns. According to the Liaoning Provincial Development and Reform Commission, starting in 2026, a differential settlement mechanism will be established outside the market for nuclear power in the province. The differential settlement costs will be temporarily incorporated into system operation expenses and shared by all industrial and commercial users. The mechanism price is set at 0.3798 yuan per kilowatt-hour, with approximately 70% of the electricity volume settled at this mechanism price and the remainder settled at the market electricity price. For 2026, the bank forecasts the Hongyanhe Power Station's average grid feed-in tariff will be 0.34 yuan/kWh, higher than the annual centralized bidding average price of 0.31 yuan/kWh but lower than the approved tariff of 0.38 yuan/kWh. Following the implementation of the mechanism pricing policy, the bank expects shareholder returns for the Hongyanhe Power Station to be around 12% in 2026, indicating a clear stabilizing effect from the policy保障.
The power market rebalancing is projected to occur around 2028. The bank calculates that although the scale of new capacity additions will decline during 2026-2027, it will remain high. The equivalent installed capacity growth rate is still expected to maintain a relatively fast pace of 8.2% and 6.5%, projected to exceed the同期 electricity consumption growth rates by 2.7 and 1.3 percentage points, respectively. By 2028, the year-on-year growth rate of equivalent installed capacity is forecast to drop to 5.6%, essentially aligning with the predicted 5.0% growth rate for electricity consumption. After a period of sustained oversupply, the power market is expected to achieve rebalancing at that time.
Policy support intentions are strengthening, potentially leading to an earlier arrival of the generation-side electricity price bottom. Policy intervention outside the market is playing a role. Similar policy保障 measures outside the market, like Liaoning's nuclear power mechanism pricing, are expected to be introduced in other regions and for other power sources. This policy support is likely to help the industry's electricity price bottom emerge ahead of the timeline that would result purely from the natural evolution of supply and demand dynamics. Furthermore, using policy to ensure reasonable returns for power generators signifies a shift in the government's approach from reducing generation-side electricity prices to stabilizing reasonable returns for generators. This aims to promote the advancement of the energy transition and ensure energy security.
Risk factors include policy support falling short of expectations, electricity demand being lower than anticipated, significant declines in electricity prices, substantial increases in coal prices, a major rise in the construction costs of wind and solar power, significantly lower-than-average water inflows affecting hydropower, and slow progress in power market reform.
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