CITIC SEC: In 2025, the power grid will face intensive policy catalysis, suggesting a layout of the ultra-high voltage sector with strong policy linkage.

CITIC SEC released a research report stating that recently, various units of the State Grid announced their performance targets for 2024. The power grid company is making continuous efforts to build around the new electricity system, with information reserves for major projects such as ultra-high voltage steadily increasing. The bank is optimistic about the grid investment maintaining a growth rate of over ten percent in 2025. It is expected that with the implementation of key issues such as the annual work conference of the State Grid in the future, the industry will enter a stage of intensive policy catalysis. It is recommended to focus on the ultra-high voltage sector that is strongly linked to policies and to pay long-term attention to directions such as the internationalization of power equipment and domestic digitalization. Key viewpoints of CITIC SEC are as follows: The State Grid announced the performance targets of various units for 2024, with keywords being "supply guarantee" and "new energy". Throughout 2024, the State Grid's various units have faced challenges such as emergency disaster response and peak load surges, focusing on ensuring the safety and reliability of the power grid, while also promoting the continuous increase of installed capacity and output of new energy sources in the region. China's new power system is becoming more perfect, with key focuses on 1) developing a composite power structure, 2) enhancing inter-regional mutual assistance capabilities, 3) creating a new dispatching system, and 4) upgrading smart grid capabilities. The key projects of ultra-high voltage are progressing steadily, and the project reserves for 2025 are becoming clearer. According to the disclosure of the National Energy Work Conference for 2025, a number of key power exchange projects will be approved for construction in 2025, actively promoting the construction of power transmission channels such as from western Inner Mongolia to Beijing-Tianjin-Hebei, from southeastern Tibet to the Greater Bay Area of Guangdong-Hong Kong-Macao, and from the Badain Jaran Desert Base to Sichuan and from Southern Xinjiang to Chongqing-Sichuan. Based on the reserves and actual construction status in 2024, the bank predicts the following: 1) in terms of DC projects - according to the State Grid's official WeChat account, the construction of projects such as Xinjiang to Sichuan-Chongqing, Gansu to Sichuan, Tibet to external transmission, and the fifth back-to-back UHV project in Inner Mongolia to Jiangsu will be accelerated. The bank believes that projects like the Xinjiang to Beijing-Tianjin-Hebei and multiple back-to-back DC projects will also continue to progress. 2) in terms of AC projects - according to People.cn Co., Ltd, around the New Year's Day of 2025, the approval for two 1000kV ultra-high voltage projects, Yanzhou-Weifang and Haiyang-Xin'an nuclear power projects, was obtained. The bank also anticipates that projects such as the Zhejiang ring network, which were part of the earlier reserves, may also be implemented within the year. Looking ahead to 2025, there is ample reserve for large-scale AC-DC projects, and the scale of construction and approval is expected to significantly increase compared to 2024, which would benefit the performance of core station equipment companies. Grid investment will maintain a dual property of pro-cyclical and counter-cyclical attributes, achieving rapid growth. The bank continues to emphasize that grid investment has a dual nature of balancing "pro-cyclical" - advancing construction plans for the development of the new power system, and "counter-cyclical" - driving the coordinated development of the industrial chain through key projects. It is expected to maintain sustained and stable investment growth, with the bank estimating that the completion amount of grid infrastructure investment in 2025 will continue to show a growth of over 10%, with an expected completion amount of around 680-700 billion yuan. Risk factors: The development of the domestic new power system may not meet expectations; grid investment growth in the domestic market may fall short of expectations; slow progress in ultra-high voltage projects; grid investment may not meet expectations; the worsening of industry competitive landscape; significant fluctuations in prices of bulk raw materials.