China Galaxy Securities: Release of 25-year Energy Work Guidelines, Uphold the Two Main Themes of Ensuring Supply and Green Practices.

China Galaxy Securities released a research report stating that on February 27, the National Energy Administration issued the "Guiding Opinions on Energy Work in 2025". Green electricity: The assessment of energy consumption targets in the final year of the 14th Five-Year Plan is expected to catalyze the demand for green electricity. At the same time, with the establishment of a price settlement mechanism for the sustainable development of new energy, the industry's future profit expectations will be clearer. It is recommended to seize the turning point opportunities in the sector. Thermal power: The recent rapid decline in coal prices is expected to reverse the market's pessimistic expectations for thermal power in 2025. It is recommended to focus on enterprises in regions with large market coal exposure and where the reduction in annual long-term contracted electricity prices in 2025 is relatively small. Hydropower and nuclear power: During the period of declining interest rates, hydropower and nuclear power, which have strong dividends, have long-term investment value. In addition, nuclear power also has high potential for future growth. Key points from China Galaxy Securities: Overall goal: Uphold the two main lines of energy security and green transformation without wavering The "Opinions" put forward the need to continuously enhance the energy supply guarantee capacity and promote steady increase in the total energy production in the country. Specifically, coal production should be stabilized and increased, crude oil production should be maintained at over 200 million tons, natural gas production should grow rapidly, oil and gas reserves should continue to increase, the total installed capacity of electricity generation in the country should reach over 3.6 billion kilowatts (33.49 billion kilowatts by the end of 2024), the newly added installed capacity of new energy generation should be over 200 million kilowatts, and the electricity generation should reach around 10.6 trillion kilowatt-hours, with continuous improvement in inter-provincial power transmission capacity. At the same time, there should be continual deepening of green and low-carbon transformation, with the proportion of non-fossil energy in electricity generation reaching around 60% by 2025 (around 57% by the end of 2024), and the proportion of non-fossil energy in the total energy consumption reaching around 20%. New energy: More positive outlook for 2025 compared to 2024 The "Opinions" propose to "actively promote the construction of the second and third batches of large-scale wind and photovoltaic bases in the 'Gobi Desert' and major river basins integrating wind and solar power, scientifically plan the layout scheme for the 'Gobi Desert' new energy bases in the '15th Five-Year Plan' period, actively promote offshore wind power project development and construction, and increase the efforts in photovoltaic desertification control and solar-thermal project construction." In contrast, the related propositions in the "Guiding Opinions on Energy Work in 2024" were to "steadily promote the construction of large-scale wind and photovoltaic bases, orderly promote project completion and operation; coordinate and optimize the layout of offshore wind power, promote the construction of offshore wind power bases, and orderly promote offshore wind power development towards deep sea and offshore areas; formulate a national solar-thermal power generation plan layout and continue to promote the scale development of solar-thermal power generation." Based on this, the bank believes that the "Guiding Opinions on Energy Work in 2025" are more positive towards the construction of new energy projects. Considering the pull of green electricity demand by the energy consumption targets per unit GDP in the final year of the 14th Five-Year Plan, and with reference to the China Electricity Council's forecast of over 300 GW of new energy installed capacity in 2025 (including 119 GW of wind energy and 213 GW of photovoltaics), the bank predicts that the scale of new energy installed capacity in 2025 may still be relatively high, and structurally, wind energy is expected to perform better than photovoltaics. In addition, the "Opinions" also point out the need to "coordinate key issues such as the development of new energy and integration system, innovate new energy pricing mechanism and integration methods, promote the comprehensive participation of new energy in the market, realize the transformation of new energy from security-based acquisition to market-based integration, and study and formulate policies and measures for direct connection of green electricity," with expected marginal improvements in new energy integration and electricity pricing issues under the continued stimulus of policies. Hydropower and nuclear power: Significant potential for incremental storage, and long-term growth prospects for nuclear power are confirmed The "Opinions" propose to "promote the installed capacity of pumped storage to reach over 62 million kilowatts by 2025", while the installed capacity of pumped storage in China was 57 million kilowatts by the end of 2024, corresponding to an additional installed capacity of over 5 million kilowatts by 2025. The bank calculates that the average annual incremental installed capacity of pumped storage in China from 2020 to 2024 was 6.38 million kilowatts, and in the process of building a new type of power system, the importance of pumped storage as a regulatory resource has become more prominent, with the additional installed capacity in 2025 remaining relatively significant. As for nuclear power, the "Opinions" propose to "approve a batch of mature coastal nuclear power projects, promote the comprehensive utilization of nuclear energy in accordance with local conditions." The bank identified positive signals for the development of nuclear power in provincial government work reports in 2025, with Shandong aiming to "strive for approval of Phase III of Haiyang and Phase I of Laiyang nuclear power projects"; Zhejiang actively promoting the Third Phase of Sanmen Nuclear Power Project; Liaoning accelerating the progress of Phase I of Zhuanghe Nuclear Power Project; Guangdong pushing for approval of Units 3 and 4 of the Taishan Nuclear Power Plant; and Fujian expediting preliminary work for Phase I of Huaneng Xiapu Nuclear Power Plant. Ample site reserves are expected to support the level of nuclear power approvals in 2025 at the same level as in 2022-2024 (10/10/11 units), with no doubt about the long-term growth potential of nuclear power. Thermal power: Short-term downside in coal prices releases profit elasticity, long-term reliability and flexibility values are expected to be reassessed The "Opinions" state that "in 2025, coal production should be stabilized and increased; while promoting the construction of coal supply guarantee bases, a batch of large-scale modern coal mines should be orderly approved, and the construction of already approved coal mine projects should be accelerated, and efforts should be continued to build coal production capacity reserves." Based on this, the bank predicts that domestic coal supply in 2025 may still be relatively sufficient, and the center of coal prices is expected to move further downward. As of February 27, 2025, the closing price of Qinhuangdao 5500 kcal power coal had fallen below 700 yuan per ton, with an average price from the beginning of the year to date at 746.89 yuan per ton, a decrease of 169.98 yuan per ton from the same period in 2024, corresponding to 5.7 cents per kilowatt-hour, which can already cover the majority of provincial annual long-term contracted electricity price declines in 2025. In regions with less pressure on electricity prices, the profitability of coal-fired power is expected to improve. In the long term, the "Opinions" state that "we should leverage the role of fossil fuels in ensuring energy security, strengthen the safe, reliable, and orderly substitution of non-fossil energy, and enhance system adjustment capabilities", with the reliability value and flexibility value of coal-fired power expected to be more fully priced, and both the revenue model and valuation are expected to be reshaped.