Galaxy Securities: The Energy Work Guidance for 25 Years Released, Persisting in the two main themes of ensuring supply and promoting green energy.

On February 27, 2025, the National Energy Administration issued the "Guiding Opinions on Energy Work in 2025". Galaxy Securities released a research report stating that the assessment of energy consumption targets in the closing year of the 14th Five-Year Plan is expected to catalyze 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 are more clear, and it is recommended to seize the turning point opportunities in the sector. The recent sharp drop in coal prices is expected to reverse the market's pessimistic expectations for thermal power in 2025. It is recommended to focus on companies with large market coal exposure and relatively small adjustments in long-term annual contract electricity prices in certain regions. During the downward cycle of interest rates, hydropower and nuclear power, with strong dividend attributes, have long-term allocation value. At the same time, nuclear power also has high long-term growth potential. The main viewpoints of Galaxy Securities are as follows: Overall goal: Adhere to the two main principles of energy security and green transformation. The "Opinions" propose to continuously enhance the capacity of energy supply guarantee and promote the steady increase of 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 maintain rapid growth, oil and gas reserves should continue to increase, the total installed capacity of national power generation should reach over 3.6 billion kilowatts (33.49 billion kilowatts at the end of 2024), the scale of new energy power generation installed capacity should be over 200 million kilowatts, and the power generation should reach around 10.6 trillion kilowatt-hours, with continuous improvement in inter-provincial and inter-regional power transmission capacity. At the same time, it is necessary to deepen the green and low-carbon transformation, with the proportion of non-fossil energy power generation installed capacity reaching around 60% in 2025 (approximately 57% at the end of 2024), and the proportion of non-fossil energy in the total energy consumption reaching around 20%. New energy: The expression in 2025 is more positive than in 2024. The "Opinions" propose to "actively promote the construction of the second and third batches of large wind and solar power bases in the Shaanxi-Gansu region and the integration of water, wind, and solar power bases in major river basins, scientifically plan the layout of the Shaanxi-Gansu new energy bases during the 14th Five-Year Plan period, actively promote the development and construction of offshore wind power projects, and increase the construction efforts of photovoltaic desert control and solar projects." In contrast, the relevant expressions in the "Guiding Opinions on Energy Work in 2024" were "steadily promote the construction of large wind and solar power bases and orderly promote the completion and commissioning of projects; coordinate and optimize the layout of offshore wind power, promote the construction of offshore wind power bases, and steadily and orderly promote the development of offshore wind power to deep waters and far shores; do a good job in the national planning and layout of solar thermal power generation, and continue to promote the scale development of solar thermal power generation." Based on this, we believe that the "Guiding Opinions on Energy Work in 2025" are more positive in terms of the construction of new energy projects. Considering the impact of the energy consumption target per unit of GDP in the closing year of the 14th Five-Year Plan on the demand for green electricity, and referring to the prediction of the China Electricity Council of new energy installed capacity increase of over 300GW in 2025 (including 119GW of wind power and 213GW of solar power), we expect that the scale of new energy installed capacity in 2025 may remain relatively high, with wind power likely to outperform solar power structurally. In addition, the "Opinions" also point out the need to "coordinate key issues such as the development of new energy and integration system construction; innovate new energy pricing mechanisms and integration methods, promote the comprehensive participation of new energy in the market, and realize the transformation of new energy from guaranteed purchase to market-oriented integration; study and formulate policies and measures for direct connection of green electricity", it is expected that under continued policy stimulus, the integration of new energy and electricity price issues will see marginal improvement. Hydropower and nuclear power: Pumped storage increment is still considerable, and the long-term growth potential of nuclear power is confirmed. The "Opinions" propose to "promote the installed capacity of pumped storage to reach over 62 million kilowatts in 2025", and by the end of 2024, China's pumped storage installed capacity was 57 million kilowatts, corresponding to an increase of over 5 million kilowatts in 2025. We calculate that the average annual increase in pumped storage capacity in China from 2020 to 2024 was 6.38 million kilowatts, and in the construction of a new type of power system, the importance of pumped storage as a regulating resource is highlighted, with the scale of new installations in 2025 still considerable. As for nuclear power, the "Opinions" propose to "approve a batch of mature coastal nuclear power projects in 2025, and promote the comprehensive utilization of nuclear energy in accordance with local conditions." We have reviewed local government work reports for 2025 and found that several provinces have released positive signals on the development of nuclear power. Specifically, Shandong proposes to "strive for approval for the Haiyang Phase III and Laiyang Phase I nuclear power projects"; Zhejiang proposes to "actively promote the Sanmen Nuclear Power Phase III project"; Liaoning proposes to "accelerate the promotion of the Zhuanghe Phase I nuclear power project"; Guangdong proposes to "promote the approval of Units 3 and 4 of the Taishan Nuclear Power Plant"; and Fujian proposes to "speed up the preliminary work of the Huaineng Xiapu Nuclear Power Phase I project". Adequate site reserves are expected to support the maintenance of the number of approved nuclear power plants in 2025 at a level similar to 2022-2024 (10/10/11 units), and the long-term growth potential of nuclear power is secure. Thermal power: Short-term decline in coal prices releases profit elasticity, long-term reliability and flexibility values are expected to be reassessed. The "Opinions" point out that "in 2025, coal production should be stable and increased; at the same time, the construction of coal supply guarantee bases should be promoted, a batch of large modern coal mines should be approved in an orderly manner, and the construction of already approved coal mine projects should be accelerated, and continuous efforts should be made to increase coal production capacity reserves." Based on this, we expect that domestic coal supply in 2025 may still be relatively sufficient, and the central price of coal is expected to further decrease. As of February 27, 2025, the closing price of Qinhuangdao 5500 kcal power coal has fallen below 700 yuan/ton, with an average price from the beginning of the year to 746.89 yuan/ton, a decrease of 169.98 yuan/ton compared to the same period in 2024, corresponding to an electricity consumption level of 5.7 cents. This can already cover the majority of the expected decrease in long-term annual contract electricity prices in most provinces in 2025, and coal-fired power plants in regions with lower electricity price pressure are expected to improve their profitability. Long-term, the "Opinions" point out that "fossil energy should play a bottom-line guarantee role, strengthen the secure and orderly substitution of non-fossil energy, and enhance system regulation capacity", it is expected that the reliability value and flexibility value of coal-fired power generation will be more fully priced, and both the revenue model and valuation are expected to be reshaped.