Gf SEC has released a research report stating that the need for distribution network upgrades and transformation is becoming increasingly urgent. The firm anticipates that strengthening distribution networks will become a key focus of the 15th Five-Year Plan period. While the performance of power distribution equipment manufacturers in the first half of 2026 may remain under pressure due to factors such as the delivery of previously low-priced orders and sustained high copper prices following a sharp increase in Q4 2025, a systemic recovery is expected in the second half of 2026. The report suggests focusing on distribution equipment companies with diversified layouts across grid-internal, grid-external, overseas, and AIDC power supply segments. The main points from Gf SEC are as follows:
Increasing Urgency for Distribution Network Upgrades
The distribution network is the "last mile" of power supply. The development of new loads like distributed renewable energy and charging piles is driving the transformation of distribution networks from one-way radial systems to interactive, bi-directional smart grids. At the policy level, both State Grid and China Southern Grid have emphasized "coordinated development of main grid, distribution, and microgrids" for the 15th Five-Year Plan period. Coupled with Document No. 187, which aims to essentially complete the flexible, intelligent, and digital transformation of distribution networks by 2030, the firm expects network strengthening to be a major construction priority in the coming five-year plan.
New Regulatory Cycle Sets Stage for Investment
On July 10th, the National Development and Reform Commission issued the transmission and distribution tariff policy for the fourth regulatory cycle. The policy separately meters tariffs for each voltage level, showing a notable increase for distribution networks: tariffs for the <1kV level rose by 6.6%, 10kV by 3.2%, and 35kV by 1.4%, while the 110kV level saw a 4.4% decrease. The firm views the rise in tariffs for the 35kV and below levels as a leading indicator for expanded distribution network investment. The new regulatory cycle rationalizes the pricing mechanism for distribution networks, providing financial support for increased investment, effectively heralding the start of a major investment phase during the 15th Five-Year Plan period.
Accelerating Internal and Recovering External Investment
For investments within the main grids, the firm estimates that State Grid's investment growth during the 15th Five-Year Plan period will be approximately 6.5%, with potential for further upward revision. If the proportion of grid investment allocated to 35kV and below distribution networks rises to 50%, the corresponding investment amount could exceed 1.9 trillion yuan, representing a 74% increase compared to the 14th Five-Year Plan period and a compound annual growth rate (CAGR) of about 12.5% from 2025 to 2030. For investments outside the main grids, Document No. 136 has spurred a rush to install wind and solar capacity in 2025, with new installations expected to moderate in 2026. In the medium to long term, factors such as energy security, accelerated electrification, and increased electricity demand driven by AI and industrialization are expected to stabilize and then increase new renewable energy installations. The firm projects the global supporting distribution market for wind and solar power generation to be around 380 billion yuan in 2026, growing to 518.7 billion yuan by 2030, representing a 4-year CAGR of about 8.1%. Concurrently, emerging markets like AIDC are rapidly developing, with global distribution investment demand driven by AIDC estimated at approximately 72.9 billion yuan in 2025, potentially increasing to 236.8 billion yuan by 2030, a 5-year CAGR of about 27%.
Bidding Prices Recover and Market Concentration Increases
In February 2025, State Grid implemented regional joint procurement, which initially put significant pressure on prices for distribution network materials in the first batch of 2025. As efforts to curb excessive competition continued, prices began to stabilize and recover starting from the second batch of 2025. For the first batch of 2026 (excluding Northeast China), the average pre-winning bid price for 10kV pole-mounted transformer sets was 115,400 yuan per set, up 9% sequentially and 54% year-on-year. The price for 10kV transformers was 72,500 yuan per set, up 18% sequentially and 33% year-on-year. The average winning bid prices for integrated primary and secondary pole-mounted circuit breakers and ring main units increased by 24% and 26% year-on-year, respectively. Regarding industry structure, the regional joint procurement model, with its design of "joint pre-qualification + regional concentration + unified standards," raises the entry barrier and amplifies economies of scale from the demand side. Combined with a bidding evaluation that "de-emphasizes low price while strengthening technical performance" and a mechanism for disqualification via sampling inspections, this model is expected to accelerate the exit of small and medium-sized producers reliant on price wars and weaker in technology. The industry is thus moving from fragmentation towards consolidation. Taking integrated primary and secondary pole-mounted circuit breakers as an example, the number of winning bidders in the three procurement batches (25B1, 25B2, 26B1) was 161, 74, and 86 respectively. The combined market share (CR10) by quantity was 21%, 34%, and 31% respectively, while the CR10 by value was 23%, 35%, and 32% respectively.
Key Risks to Consider
Potential risks include distribution network investment falling short of expectations; intensified competition within the distribution network industry; new energy installations and AIDC construction falling short of expectations; and slower-than-expected adoption of new technologies and expansion into overseas markets.
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