CITIC SEC: The value of energy security is highlighted, and public utilities are expected to benefit from reevaluation

CITIC SEC released a research report stating that the recent US-Iran conflict has exposed the vulnerability of the energy supply chain. The strategic value of electricity as a cornerstone of China's energy security is expected to be reassessed. Against the backdrop of improving policy attitudes and expectations of electricity prices bottoming out, the electricity sector is expected to see a dual recovery opportunity in terms of fundamentals and valuation. Recommendations include: nuclear power leaders benefiting from normalized approval of units and mechanism-based electricity price protection; hydropower leaders with high-quality underlying assets and stable dividends; coal-fired integrated enterprises with upstream resource advantages and effective hedging against fuel price fluctuations; H-shares of green electricity and thermal power with low valuations and attractive dividends. Main points of CITIC SEC: Event The US-Iran conflict continues to escalate, targeting energy infrastructure. According to reports from China News Network, since the outbreak of the US-Iran conflict, the Strait of Hormuz has been blocked, and the oil and gas production bases in Qatar have been attacked, leading to a decrease of approximately 61% in oil exports from the Middle East region. The tightening of oil and gas exports from the Middle East has driven international oil and gas prices to rise rapidly, with Brent crude oil prices surpassing $100 per barrel, sparking global concerns about energy security and supply stability. China's energy consumption structure is diversified, with overall controllable external dependency risks According to data from the National Bureau of Statistics, China's total energy consumption is expected to reach about 6.17 billion tons of standard coal by 2025, with coal/oil/natural gas/electricity and other accounting for 51.4%/18.2%/8.7%/21.7% respectively. This forms a diversified energy supply pattern based on the resource endowment of "rich coal, poor oil, and scarce gas." According to data from the General Administration of Customs and the National Energy Administration, China's external dependence on coal/oil/natural gas by 2025 will be 10%/76%/40% respectively. Despite the relatively high external dependence on oil and gas resources, China's energy security risks are within a controllable range through electricity substitution and optimization of energy structure. Significant progress in energy transition, but challenges remain in infrastructure construction and high-end manufacturing development Under the leadership of the "dual carbon" goals, China continues to promote the construction of clean energy sources such as green electricity and nuclear power, with strong momentum in the development of clean energy. According to data from the China Electricity Council, by 2025, the proportion of non-fossil energy installed capacity in the country will increase to 60%, and the proportion of electricity generation will rise to 35%, highlighting the outstanding achievements in energy structure transformation. However, there are still challenges in promoting energy transition: inadequate construction of ultra-high-voltage transmission channels and energy storage facilities in the northwest region have made it difficult to integrate green electricity, weakening industry investment enthusiasm; advanced manufacturing in areas such as fourth-generation nuclear power technology and controlled nuclear fusion still requires continuous investment in research and development. Overall, although China's energy transition is progressing rapidly, continuous capital investment and policy support are needed to drive breakthroughs in related areas. Under the demands of ensuring energy security and promoting energy transition, electricity prices are expected to benefit from policy incentives to achieve an early bottoming out Currently, the electricity industry is facing pressures from intensive investment in new installations and electricity market reforms, leading to a period of loose supply and demand in the industry, significant decline in market-priced electricity, and significant profit pressure in the industry. However, electricity, as a stabilizer of energy supply, plays a critical role in ensuring national energy security and is also an important driver for achieving the dual carbon targets. In March 2026, Liaoning introduced a mechanism-based electricity price policy for nuclear power, providing a reasonable level of return for nuclear power stations in the province, reflecting the government's willingness to support policy; the bank predicts that other provinces will continue to introduce similar policy support measures to promote an early rebound in electricity prices before the industry reaches supply-demand balance, thus boosting investment enthusiasm in electricity and supporting the industry's long-term and stable development. Risk factors Lower-than-expected electricity demand; significant downward pressure on market traded electricity prices; unexpected rise in fuel costs; intensified risks in the integration of new energy sources; slower-than-expected progress in electricity system reform.