China Merchants Securities released a research report stating that power grid investment is transitioning from a "supportive role for stable growth" into an accelerated phase of "building a new power system," with industry prosperity expected to last throughout the "16th Five-Year Plan" period. Both supply and demand in the industry maintain growth, but difficulties in absorbing power have become the core contradiction; the construction of transmission channels (UHV/main grids) and the enhancement of regulation capabilities (energy storage/distribution networks) are the primary solutions to this issue. Overseas local production capacity expansion is constrained, while leading Chinese enterprises possess significant delivery advantages in areas such as transformers, switchgear, smart meters, and insulators. The main views of China Merchants Securities are as follows:
The State Grid's "16th Five-Year Plan" investment plan exceeds expectations, suggesting industry prosperity may be sustained throughout the period, with State Grid Corporation's fixed asset investment projected to reach 4 trillion yuan, a substantial 40% increase compared to the planned value of the "14th Five-Year Plan." Calculations indicate that if 2025's State Grid fixed asset investment of 650 billion yuan is taken as the base, achieving the total target of 4 trillion yuan during the "16th Five-Year Plan" implies an annualized compound growth rate (CAGR) of approximately 7%, on par with the "14th Five-Year Plan" stage (7.1%), with actual implementation potentially being even higher. This signals an accelerated shift in grid investment focus towards constructing a new power system, with industry vitality likely to persist.
Absorption pressure is intensifying dramatically, making UHV and energy storage critical solutions. On the demand side, total electricity consumption in society is steadily rising and is expected to maintain rigid growth driven by new demands such as electric vehicles and AI computing power. On the supply side, wind and solar power installations experienced explosive growth during the "14th Five-Year Plan" period, with newly added photovoltaic and wind capacity accounting for nearly 80% of the national total in the past three years, far exceeding the original grid's planned carrying capacity. The growing "scissors gap" between increased volatility on the generation side and lagging grid construction has made absorption difficulties the core contradiction; constructing transmission channels and enhancing regulation capabilities are the main paths to resolve this issue.
Overseas power grids are entering a "Juglar cycle," presenting significant opportunities for advantaged companies. Power grids in Europe and the US are entering this cycle, with the average service life of equipment approaching the 30-40 year replacement threshold. Coupled with new electricity demands from AI and other sectors, overseas grids are in a phase of "passively accelerated investment." Constraints on local capacity expansion abroad, combined with the strong delivery capabilities of leading Chinese firms in transformers, switchgear, smart meters, and insulators—bolstered by earlier overseas deployments—suggest these advantaged companies may achieve even greater heights during this cycle.
Risk warnings include potential impacts on investment implementation from electricity consumption and economic growth falling short of expectations, as well as rapid capacity expansion potentially reducing profitability levels.
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