Tianfeng: Comprehensive implementation of new market policies, new energy operators' profits are expected to be stable.

Tianfeng issued a research report stating that the joint issuance of the "Notice on Deepening the Market-oriented Reform of Renewable Energy Electricity Price and Promoting the High-quality Development of Renewable Energy" by the National Development and Reform Commission and the National Energy Administration requires that specific plans be formulated and implemented by the end of 2025 in various regions. Its policy measures will promote efficient allocation of renewable energy resources, stabilize industry development expectations, and balance the relationship between new and old projects. Renewable energy operators are expected to obtain reasonable and stable profits, with a good long-term development prospect. The main points of Tianfeng are as follows: Comprehensive entry of renewable energy into the market, promoting efficient resource allocation With the large-scale development of renewable energy, the fixed price for renewable energy grid connection cannot fully reflect market supply and demand, nor fairly bear the responsibility of grid system regulation, leading to increasingly prominent contradictions. This "Notice" proposes that the electricity generated by renewable energy projects should primarily enter the electricity market, and the grid connection price should be formed through market transactions. Renewable energy projects can participate in trading by reporting quantities and prices, or accept prices formed by the market. The comprehensive entry into the market policy can make the renewable energy grid price more accurately reflect market supply and demand, ensuring more rational resource allocation. Building a price settlement mechanism to stabilize industry development expectations Renewable energy generation is characterized by randomness, volatility, and intermittency, especially with solar power concentrated at noon. After participating in market trading comprehensively, the increase in midday power supply and significant price reduction may result in fluctuations in actual income for renewable energy, not conducive to sustainable development. This "Notice" proposes the establishment of a sustainable price settlement mechanism, providing compensation for the difference when the market transaction price is lower than the mechanism price and deducting the difference when it is higher. Through this differential settlement method of "more refund and less subsidy," enterprises can have reasonable and stable expectations, promoting steady and healthy industry development. Classifying and managing stock and incremental projects to balance the relationship between new and old projects Stock projects and incremental projects are divided based on production before and after June 1, 2025. 1) Stock projects that were put into operation before June 1, 2025 will be reconciled with the current policy through differential settlement. 2) Incremental projects put into operation after June 1, 2025 will have the scale of electricity incorporated into the mechanism adjusted dynamically based on the completion of various local renewable energy development goals set by the country, and the mechanism price will be determined through market-based bidding by each region. This mechanism maintains the stable operation of stock projects, while determining the mechanism price of incremental projects through market-based means, facilitating the market's role. Investment recommendation: After the implementation of the new policy, renewable energy companies are expected to obtain reasonable and stable profits through the differential settlement method. In the long term, the industry development trend is positive, and the valuation of related companies may be repaired. In terms of specific investment targets, it is recommended to focus on the H-shares of China Longyuan Power Group Corporation (00916), China Suntien Green Energy Corporation (00956), DATANG RENEW (01798), CHINA RES POWER (00836), as well as the A-shares of NYOCOR (600821.SH), CHINA GREEN(000537.SZ), Fujian Funeng (600483.SH). Risk warning: Risks in investing in the renewable energy sector include macroeconomic downturns, fluctuations in electricity prices, slower-than-expected growth in renewable energy installations, increased construction costs for power stations, lower-than-expected renewable energy integration, and policy adjustments in the industry. Investors need to carefully consider these risks.