Haitong: The new policies stabilize electricity price expectations. In the long term, this is beneficial for the construction of new types of power systems.

Haitong released a research report stating that two departments issued documents to deepen the market-oriented reform of new energy on-grid electricity prices, promoting the comprehensive marketization of on-grid electricity prices for new energy. This new policy stabilizes price expectations through price difference contracts, which in the long term will benefit the construction of new types of power systems. From the perspective of new energy operators, the price difference contract mechanism is an effective transition between comprehensive market-based trading and existing policies. Through this "more return, less compensation" difference settlement method, it provides them with a relatively basic and stable income, allowing companies to have reasonable and stable expectations. It is like providing "insurance" for new energy to participate in the market and relieving new energy companies of worries about market competition. Haitong's main points are as follows: Two departments issued documents to deepen the market-oriented reform of new energy on-grid electricity prices, promoting the comprehensive marketization of on-grid electricity prices for new energy. On February 9, the National Development and Reform Commission and the National Energy Administration issued the "Notice on Deepening the Market-oriented Reform of New Energy On-grid Electricity Prices to Promote the High-Quality Development of New Energy," with three main contents: first, promoting the comprehensive formation of on-grid electricity prices for new energy by the market, with the principle that the electricity quantity of new energy projects should mainly enter the electricity market, and the on-grid electricity prices are determined through market transactions; second, establishing a price settlement mechanism that supports the sustainable development of new energy, after new energy participates in market transactions, a sustainable development price settlement mechanism is established in the settlement process, and the electricity included in the mechanism is settled at the mechanism price; third, categorizing and implementing policies for existing and new projects, the mechanism electricity price of existing projects should be properly connected with existing policies and not exceed the local coal-fired power benchmark price. The mechanism electricity price of new projects should be determined through market bidding. The division between old and new implements a price difference settlement mechanism. According to the released Q&A from the National Development and Reform Commission, when implementing the price settlement mechanism for the sustainable development of new energy, differentiate between existing and new projects and implement different policies. For existing projects that have been put into operation before June 1, 2025, price difference settlement is carried out to ensure that the electricity price is properly connected with existing policies and not higher than the local coal-fired power benchmark price. For new projects put into operation on or after June 1, 2025, the scale of electricity included in the mechanism is dynamically adjusted based on the completion of new energy development goals in various regions as determined by the state, and the mechanism electricity price is determined by market-based bidding at the local level. This arrangement of old projects using old methods and new projects using new methods can help maintain the stable operation of existing projects while determining the mechanism electricity price of new projects through market mechanisms, which is conducive to better market operation. The market-oriented reform of new energy on-grid electricity prices has broad and profound impacts on the new energy industry. In terms of income, according to the LMD Power Spot public account, there has been a significant change in the income structure of new energy power plants, transitioning from mainly guaranteed income to a combination of market trading income, price difference compensation income, and auxiliary service sharing costs. Market trading and price difference compensation income are influenced by various factors, and price difference compensation cannot eliminate individual differences in trading income from power plants, leading to fluctuations in market trading income. In terms of operations, market trading has become an essential capability, requiring a well-designed trading strategy. Production and operation also need to be combined with market price increases, with higher requirements for power and generation forecasting. From an investment perspective, decisions should be made based on market-based trading income, and unreasonable investments will be restricted, with project approvals and grid connection requirements lowered. This new policy stabilizes price expectations through price difference contracts, which in the long term will benefit the construction of new types of power systems. The bank believes that from the perspective of new energy operators, on the one hand, the price difference contract mechanism is an effective transition between comprehensive market-based trading and existing policies. Through this "more return, less compensation" difference settlement method, it provides them with a relatively basic and stable income, allowing companies to have reasonable and stable expectations. It is like providing "insurance" for new energy to participate in the market and relieving new energy companies of worries about market competition. On the other hand, determining the mechanism price through competitive bidding for new projects will ensure that some technically advanced and cost-leading new energy projects can develop better. From the perspective of industry development, this policy is conducive to forming real market prices, promoting the efficient allocation of power resources, better guiding the coordinated development of new energy with regulating power sources and power grids, and greatly promoting the construction of a unified national electricity market. Risk Warning: Reform progress is slower than expected; policy implementation is slower than expected; price fluctuation risks.