BOCOM INTL: Deepen the reform of the new energy quantity and price marketization, and moderately alleviate the market's concerns about the downward trend of electricity prices.

BOCOM INTL issued a research report stating that the National Development and Reform Commission and the National Energy Administration jointly issued a notice on deepening the market-oriented reform of new energy on-grid electricity prices to promote the high-quality development of new energy. The notice provides opportunities for wind power and CECEP Solar Energy generation projects to convert to more flexible policies. The new policy has a mild impact on existing projects and a slight short-term impact on the profitability of large-scale new energy operators, while also increasing the visibility of electricity prices and alleviating market concerns about a downward trend in on-grid electricity prices. BOCOM INTL's main points are as follows: New directions for reform of new energy on-grid electricity prices and electricity volume The National Development and Reform Commission and the National Energy Administration jointly issued a notice on deepening the market-oriented reform of new energy on-grid electricity prices to promote the high-quality development of new energy. The main reform contents include comprehensive marketization of on-grid electricity prices and the establishment of a new price settlement mechanism. Existing and incremental projects will be classified and managed differently starting from June 1, 2025: 1) Promote comprehensive marketization of on-grid electricity prices: The policy direction is to promote full marketization of on-grid electricity for wind power and CECEP Solar Energy generation projects, with the electricity price determined by market transactions. The market should have expectations in this regard. 2) Establish a new price settlement mechanism: After participating in market transactions, a sustainable price settlement mechanism will be established for renewable energy, with electricity settled at mechanism prices. 3) Differentiate between existing and incremental projects: Existing and incremental projects will be classified starting from June 1, 2025. The mechanism price of existing projects will be well connected with current policies, and the proportion of electricity that can determine the mechanism independently can be determined by the previous year. The mechanism price of incremental projects will be determined through market bidding and the electricity volume will be determined based on factors such as the annual renewable energy consumption responsibility weight assigned by the state, as well as user's capacity to bear. Flexibility in wind/solar + storage policies may increase The notice also states that "storage capacity cannot be used as a precondition for the approval, grid connection, and on-grid connection of new renewable energy projects." This is understood by the bank as providing an opportunity for wind power and CECEP Solar Energy generation projects to have more flexible policies regarding storage capacity. The new policy has a mild impact on existing projects and a slight short-term impact on the profitability of large-scale new energy operators The market already has certain expectations for the marketization of wind and solar projects with rapid increases in installed capacity in recent years. The distinction between existing and incremental projects in the notice can to some extent maintain the returns of old projects. As for the new arrangements for the electricity volume and price of new projects, the bank expects that the development of new projects by operators during the "14th Five-Year Plan" period will depend more on actual electricity demand and project returns, which will help stabilize the development of new energy in the mainland. For large-scale new energy operators at present, such as China Longyuan Power Group Corporation (00916), CHINA POWER (002380), CHINA RES POWER (00836), the new policy has a slight short-term impact on profitability, while also increasing the visibility of electricity prices and alleviating market concerns about a downward trend in on-grid electricity prices. Risk factors: Wind/solar on-grid electricity consumption lower than expected, compensation for price settlement mechanisms lower than expected, market trading electricity prices decreasing more than expected.