GF Securities released a research report stating that China's total electricity consumption in 2025 is projected to increase by 5.0% year-on-year, while power generation by large-scale enterprises is expected to grow by 2.2%. From the perspective of incremental contributions, wind and solar power accounted for a staggering 90.1% of the total generation increase from January to December, indicating that the power generation structure is gradually shifting towards a clean, low-carbon phase dominated by wind and solar energy. Pessimistic expectations regarding electricity prices may continue to improve, drawing attention to regions with favorable power supply-demand dynamics and market structures, such as North China and Northwest China. The acceleration of the utility sector's transformation warrants a focus on the dividend value within the sector.
In 2025, total electricity consumption is expected to rise by 5.0% year-on-year, while power generation from large-scale enterprises is projected to increase by 2.2%. (1) The growth in electricity consumption is shifting from the secondary industry to the tertiary industry and residential use: According to data from the National Energy Administration, total electricity consumption from January to December increased by 5.0% year-on-year (compared to 6.8% in the same period last year). Specifically, the primary industry, secondary industry, tertiary industry, and residential consumption grew by 9.9%, 3.7%, 8.2%, and 6.3% year-on-year, respectively. In terms of incremental contribution, the combined increase from the tertiary industry and residential consumption accounted for 34.6%, 47.6%, and 50.2% of the total growth from 2023 to 2025. This indicates a clear shift in consumption growth away from the secondary industry towards the tertiary sector and households, with an internal transition within the secondary industry from energy-intensive manufacturing to emerging manufacturing sectors. (2) The increase in power generation is primarily driven by wind and solar: Power generation from large-scale enterprises from January to December rose by 2.2% year-on-year (compared to 4.6% in the same period last year). Throughout the year, thermal, hydropower, wind, solar, and nuclear power generation changed by -1.0%, +2.8%, +9.7%, +24.4%, and +7.7% year-on-year, respectively. Regarding incremental contribution, wind and solar power alone contributed 90.1% of the total generation increase from January to December (compared to 61.9% and 44.7% in 2023-2024), signaling a gradual transition to a clean, low-carbon power generation structure led by wind and solar energy.
Annual long-term contract electricity prices have been largely finalized, with expectations for the effectiveness of price stabilization measures in countering internal competition. (1) Observing from a monthly price perspective: In December, Shandong's monthly electricity price decreased by 0.3 cents year-on-year (while increasing by 0.4 cents for the full year), Shanxi's price fell by 2 cents year-on-year (down 0.6 cents for the full year), Guangdong maintained a price of 372 yuan/MWh but dropped by 3 cents year-on-year (down 5 cents for the full year), and Jiangsu's price declined by 8 cents year-on-year (down 6 cents for the full year). (2) Four provinces - Jiangsu, Guangdong, Guangxi, and Hainan - have issued documents highlighting the risks associated with excessively low retail electricity price contracts: These primarily focus on the phenomenon of electricity retailers offering very low prices to the retail side, warning that factors like energy price fluctuations could lead to contract fulfillment risks, suggesting that low-price competition behaviors may see some improvement. (3) Looking ahead to 2026, current annual long-term contract prices in various provinces are gradually approaching their lower limits, leaving limited room for further declines. As the growth rate of new energy installation slows, the power supply-demand balance is expected to gradually improve, potentially leading to a bottoming out of energy prices. Furthermore, the increase in coal power capacity prices in most provinces could contribute an additional nearly 2 cents per kilowatt-hour. In summary, pessimistic expectations for electricity prices may continue to improve, warranting attention to regions with better power supply-demand conditions and market structures, such as North China and Northwest China.
Focusing on the present, investment opportunities in thermal and hydropower should be monitored, emphasizing the defensive attributes of the sector. (1) For thermal power: In 2025, northern companies generally reported strong earnings growth and exhibited superior stock performance; for instance, Ji Tou Neng Yuan and Jing Neng Dian Li saw their stock prices surge by 60%-70% in the first half of the year. Currently, annual long-term contract volumes and prices for 2026 in various provinces are nearing their lower limits, suggesting limited future declines. Additionally, the increase in coal power capacity prices for 2026 could add nearly 2 cents per kilowatt-hour. Simultaneously, thermal power plants are also utilizing market-based trading mechanisms to increase revenue per unit, making improved profit stability still a promising prospect. (2) For hydropower: After the flood season, attention should be paid to Chang Jiang Dian Li, which has high energy storage capacity, and Gui Guan Dian Li, which is expected to report strong Q4 earnings growth. With the low base of electricity generation during the flood season, hydropower is poised to maintain profit growth for multiple quarters. Furthermore, various groups still possess hydropower assets that have not been securitized, and their progress is also worth monitoring.
The acceleration of the utility sector's transformation highlights the importance of focusing on the sector's dividend value. (1) Thermal Power: High-performing, high-dividend companies with active market capitalization management, such as Hua Neng Guo Ji Dian Li Gu Fen, Hua Dian Guo Ji Dian Li Gu Fen, Guo Dian Dian Li, Shen Neng Gu Fen, Nei Meng Hua Dian, and Gan Neng Gu Fen. (2) Hydropower: Chang Jiang Dian Li, which demonstrates strong earnings growth, and Gui Guan Dian Li, which benefits from asset injections. (3) Gas: Jiu Feng Neng Yuan, which is involved in coal-to-gas projects. (4) Green Power with High ROE and Low P/B: Long Yuan Dian Li H and Fu Neng Gu Fen. (5) Nuclear Power: Zhong Guang He Dian Li, which is affected by policy adjustments in Guangdong's nuclear power sector.
Risks include fluctuations in coal costs; hydropower inflows falling short of expectations; and volatility in utilization hours.
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