CITIC SEC: Traditional power sources directly benefit from energy storage, virtual power plants, and other wide-ranging opportunities.

CITIC Securities released a research report stating that in a scenario with a high proportion of new energy, ensuring the balance of the power system faces enormous challenges, and various types of power generation entities need reasonable recovery of installation costs. It is urgent to establish a power capacity market mechanism that reflects the value of capacity support capability. In the short term, it is expected that traditional base load power sources will effectively recover installation costs mainly through capacity compensation prices; in the medium to long term, establishing a power capacity market will bring more power supply entities such as new energy storage, wind power, solar power, and virtual power plants into the market. It is recommended to focus on coal-fired power companies that directly benefit from the construction of capacity markets, expand the profit models of energy storage and virtual power plants, and seize opportunities in the supporting industries such as smart metering devices and power trading software. Key points highlighted by CITIC Securities include: Necessity: With the accelerated promotion of the new energy market, it is necessary to prepare for the establishment of a power capacity market. At the power system level, in a high proportion of new energy scenarios, ensuring the balance of the power system faces enormous challenges. At the level of power generation entities, with continuous hours of pressure compression, coal-fired power companies are poorly managed. At the participant level, the profit models of new energy storage and virtual power plants are lacking, and a single energy market cannot provide sufficient incentives for flexible resources. In the long term, establishing a power capacity market mechanism that reflects the value of capacity support is an inevitable trend. Adequacy: As the marketization process continues, the puzzle of the power market is being completed. Under the new power system, the power market is transitioning from a "single energy market" to a multi-dimensional system of "energy + capacity + ancillary services". The capacity and energy markets correspond to the two core goals of ensuring the reliability and economic operation of the power system. In terms of market construction pace, the medium to long-term markets have become relatively mature, spot electricity trading is widely promoted, and the power capacity market, as an effective supplement to the power trading system, needs to be prepared. Capacity market is a market incentive mechanism driven by administrative forces. Currently, the compensation price for coal-fired power and pumped storage is mainly used nationwide, with some exploration of new energy storage at the local level. In terms of the mechanism to ensure the adequacy of power generation capacity in the power market, the current models mainly used domestically and internationally include scarcity pricing, fixed cost compensation mechanisms, and capacity market mechanisms. Compared to other mechanisms, the capacity market has higher resource allocation efficiency, providing effective guidance for the installation of source-side capacity, or the ultimate form of capacity compensation mechanisms. There are still multiple interest conflicts in policy landing, and the mechanism hardware bottleneck needs to be overcome. The mechanism design faces practical issues such as inflated bids and capacity measurement discrepancies, which can be overcome through model mechanism optimization. Interest conflicts involve conflicts between coal-fired power and new energy goals at the power generation end, disagreements in inter-provincial capacity dispatch at the grid end, and balancing stable electricity prices and fiscal burdens at the user end. Hardware bottlenecks involve lacking flexibility in traditional generating units, lagging scale of new entities, saturation of inter-provincial transmission channels, and lack of smart metering and detection intelligence. Policy expectations: Pilot projects first, gradual expansion, synergistic integration. In the short term, traditional base load power sources such as coal-fired power and pumped storage will be effectively recovered mainly through capacity compensation prices; in the medium term, a national unified capacity market framework will be established, expanding the participation of market entities and bringing more reliable power supply entities such as wind power, solar power with storage, new energy storage, and virtual power plants into the market; in the long term, promoting the perfection of the market system, promoting the synergistic integration of the capacity market with the energy market, ancillary services market, green electricity and green certificate market, and power financial derivative market. Investment opportunities: Traditional power sources directly benefit, and prospects for the supporting industry chain are promising. First, traditional coal-fired power and energy storage will directly benefit, and the assessment requirements of the capacity compensation mechanism for deep peak shaving capabilities will accelerate the flexible transformation of coal-fired units and greatly improve the economic feasibility of energy storage investments. Second, there is potential demand for the expansion of inter-provincial power transmission channels, which needs to be explored, and the profit potential for comprehensive energy service providers such as virtual power plants is significantly expanded; third, supporting industries such as smart metering devices and power trading software will indirectly benefit. Risk factors Slow progress in the dual-carbon strategy; slower than expected progress in the policy advancement of the power capacity market; inter-provincial coordination in the power capacity market not meeting expectations; macroeconomic factors leading to lower-than-expected electricity demand.