Zhongjin: Electricity price risk continues to be gradually released, regional differentiation intensifies.

Golden Finance released a research report stating that the overall performance of new energy electricity enterprises in the first half of 2024 was lower than market expectations. The profitability of new energy assets in the first half of 2024 continued to trend downwards, reflecting the pressure of decreasing utilization hours and comprehensive electricity prices, as well as the amplification of cost rigidity leading to a decline in profits. However, with frequent policies on environmental value and demand side in the industry, it is still recommended to focus on undervalued green energy tracks, and recommend CHINA POWER (02380) and Huaneng Power International, Inc. (00902). Industry data review: Regional differentiation is obvious, with better performance in the south, but regions like Northeast China, Hubei, Xinjiang, and Gansu are under pressure. Specifically: southern provinces have strong consumption capacity. Southeastern provinces (Jiangsu, Zhejiang, Shanghai, Anhui, etc.) have strong electricity demand, mainly depend on thermal power with strong regulation capacity, and wind and solar utilization rates are close to 100%. Southwest China (Sichuan, Chongqing, Yunnan, etc.) has resource and electricity price advantages, attracting high energy-consuming industries to move in, with high industrial production activity and wind and solar utilization rates above 97%. The consumption capacity in the three northern regions continues to be under pressure. Northeast China has weak demand, with wind/solar utilization rates in Eastern provinces declining by 3-4 percentage points compared to the previous year; Northwest China has a high proportion of clean energy but lacks regulation and transmission capacity. Inner Mongolia has strong electricity demand combined with poor wind resources, resulting in an improvement in consumption compared to the previous year. The consumption capacity of major hydropower provinces in central China is marginally declining. Performance review of electricity enterprises: In the first half of 2024, the profit of new energy electricity ranged from 0.12 to 0.26 yuan per kilowatt-hour, with a year-on-year decline of 11-13% for wind and 20-30% for solar; the price of green power rose and fell. Regarding consumption: wind utilization hours declined by a high single-digit percentage year-on-year, mainly due to poor wind resources, with the decline in the three northern regions greater than in southern regions, and the limit rate declining by less than 2 percentage points year-on-year. Solar utilization hours declined by a low single-digit percentage year-on-year, mainly due to limit restrictions, with the limit rate declining by over 3 percentage points year-on-year. In terms of electricity prices: The comprehensive electricity price accelerated its year-on-year decrease, with a larger decrease in solar compared to wind, mainly due to the rapid increase in scale of grid parity projects and a higher rate of increase compared to the same period last year. The trading price fluctuated, with limited impact on the comprehensive electricity price; solar faced greater pressure due to the time-of-use electricity price policy and concentrated output periods. Green power trading accounts for 8-13% of the market's electricity, with a premium of 4-5 points per kilowatt-hour; green certificate premiums range from 0.3-1 point per kilowatt-hour. While the unit premium has decreased year-on-year, the scale has increased rapidly. Outlook for the second half of 2024: New energy operators may face temporary pressure on volume and price, with expectations for a rebalance in consumption in the medium to long term. New energy prices may continue to be under pressure, but the impact is expected to weaken marginally. Since 2024, various policies have guided the decomposition of green electricity consumption responsibility towards users, with energy-intensive industries taking on the responsibility first. It is anticipated that the industry will evolve from current volume pricing pressure to short-term volume supplement pricing, and medium to long-term supply and demand rebalancing. At the same time, the acceleration of state subsidies repayment will ease the contradiction between high capital expenditure and leverage assessment, and the restrictions on equity financing. Risk factors: Unexpected rebound in limit rate, unexpected downward trend in market electricity prices, policies not meeting expectations.