CITIC SEC: Industrial users' demand for direct supply of green electricity is expected to continue to grow, driving improvement in the profit expectations of operators.

CITIC SEC released a research report stating that, driven by factors such as the EU carbon border tax, the demand for industrial users to directly purchase green electricity is expected to continue to grow, adding new pathways for green electricity consumption, and improving the profit expectations of green electricity operators. With the continuous increase in the proportion of new energy entering the market and the gradual establishment of price difference settlement mechanisms, green electricity operators with excellent resource endowments, deep accumulation of electricity trading experience, and outstanding energy management capabilities are expected to transform their advantages into profitability advantages; the continuous deepening of electricity market reform will drive the growth of digital demands such as power prediction, trading assistance, and virtual power plants. Event: Recently, the Jiangsu Provincial Development and Reform Commission issued a notice on the innovation and implementation of the pilot project for direct supply of green electricity, confirming 5 pilot projects for direct supply of green electricity, such as Jiangsu Times New Energy Technology Co., Ltd., which are the first in the country to initiate the innovative model of direct green electricity supply planned and constructed by grid enterprises. Main points of CITIC SEC are as follows: The direct green electricity supply model fully taps into the demand for low carbon & cost reduction, and enhances the integration of power generation side and electricity consumption side as well as the stability of electricity prices. Direct green electricity supply refers to the model of directly providing green electricity to large users such as new energy projects and industrial parks, realizing the direct connection between energy production and consumption. For users, the direct green electricity supply model can meet their demand for low carbon, clean energy, avoid disputes over carbon emissions accounting under international rules, and reduce costs by reducing transmission distances and losses. For the power generation side, the direct green electricity supply model provides relatively stable electricity quantity and price guarantee for the consumption of new energy projects. With the continuous increase in marketization ratio and the widening fluctuation of electricity prices, developing more direct green electricity supply projects is conducive to strengthening the stability of power consumption and profitability. The initial projects mainly serve battery export enterprises, and the EU carbon footprint rules stimulate the demand for direct green electricity supply. According to the EU's Battery and Waste Battery Act, from July 2024, power and industrial batteries sold in the EU market must declare their carbon footprint. Currently, the EU recognizes only two carbon footprint calculation models, one based on the national average electricity consumption composition and the other on direct electricity connection. Export-oriented battery companies in China will find it difficult to meet EU requirements if they use the former model and cannot offset carbon emissions by purchasing green certificates. Therefore, there is a demand for the direct green electricity supply model. The Jiangsu Province green electricity direct supply pilot project has selected 5 battery companies in Changzhou, Suzhou, and Yancheng, and through the construction of green electricity dedicated lines, new energy projects are directly connected to battery companies, effectively meeting the demand for direct consumption of green electricity by battery companies and avoiding the impact of carbon emissions on product exports. It is expected that under the influence of EU carbon tax policies, the demand for direct green electricity supply from other export-oriented enterprises will continue to be released. Many local governments are promoting the development of the direct green electricity supply model, adding safeguards for green electricity consumption. In recent years, in addition to Jiangsu Province, many provinces such as Shanxi, Shandong, Inner Mongolia, and Jilin have issued policies that explicitly support the implementation of pilot projects for direct green electricity supply, encouraging new energy companies to sign mid- to long-term contracts with export-oriented enterprises to ensure the consumption of new energy generation. With the gradual clarification of cross-subsidy mechanisms for distributed photovoltaics and other main participants in direct green electricity supply, as well as the growth in downstream user demand, it is expected that the direct green electricity supply model will expand rapidly, adding new consumption pathways for new energy companies, and improving the stability of green electricity project operations. Risk factors: Slower than expected growth in electricity consumption; sharp decline in market-based electricity prices; fluctuations in wind and solar project costs; slower than expected progress in promoting the direct green electricity supply model; slower than expected progress in the construction of new power systems.