CITIC SEC: Return to Normal Growth Rate of Electricity Usage, Structural Changes Reshape Demand.

CITIC SEC released a research report stating that in 2025, China's total electricity consumption is expected to increase by 5.0% compared to the previous year, down by 1.8 percentage points from 2024. The GDP electricity elasticity coefficient has decreased to 1.0 for the first time since 2020, with structural factors being the main reason for the slowdown in electricity demand. The traditional high-energy-consuming industries continue to decline, while the growth rate of emerging high-end manufacturing industries is experiencing a temporary decrease. However, the overall electricity consumption in the secondary industry still remains resilient. Under the driving force of the expansion of new energy vehicle charging services and computing infrastructure, the demand for electricity in the tertiary industry is expected to remain stable. CITIC SEC predicts that the GDP electricity elasticity coefficient is expected to rise again, with the growth rate of total electricity consumption in the society estimated to be 5.4%/5.2%/5.0% in 2026-2028. Key Points from CITIC SEC: Background of the report: Rarely low electricity elasticity coefficient of 1.0 in recent years. In 2025, China's total electricity consumption is expected to increase by 5.0% compared to the previous year, down by 1.8 percentage points from 2024. The GDP electricity elasticity coefficient has decreased to 1.0, a rare occurrence in recent years. Excluding the disturbance of temperature fluctuations on the growth rate of residential electricity consumption, there is still a 1.2 percentage point decline in overall electricity consumption. This report analyzes the changing trends in industry prosperity and electricity consumption structure based on the trend of electricity demand. Resilient electricity consumption in the secondary industry, with the manufacturing industry's demand growth rate expected to bottom out and rebound. The manufacturing industry is still the core source of electricity demand growth in China, with electricity consumption expected to be around 5 trillion kWh in 2025, contributing 1.7% to the overall electricity consumption growth rate. Looking at the division of industries, the growth focus of manufacturing electricity consumption is gradually shifting from traditional high-energy-consuming industries to emerging high-end manufacturing industries. In recent years, the growth of non-ferrous metals and ferrous metals industries has slowed down, while the non-metal industry has experienced a downturn, leading to a continuous decrease in electricity consumption growth in traditional high-energy-consuming industries. The "anti-coiling" trend in industries like polysilicon has led to a decline in production, resulting in a fluctuation in the growth rate of electricity consumption in emerging manufacturing industries. With the marginal narrowing of the decline in high-energy-consuming industries' growth rate, as well as the deepening of anti-coiling and the stabilization and rebound of growth rates in emerging industries, the overall electricity demand growth in the manufacturing industry is expected to bottom out and rise. Stable demand in the tertiary industry, with IT and charging services being core contributors to incremental growth. Benefiting from the rapid expansion of new energy vehicle charging services and computing infrastructure, the wholesale and retail industry and information software services industry have become important sources of electricity consumption growth in the tertiary industry. The new electricity consumption in 2025 accounted for 37.9%/19.7% of the tertiary sector. Although the overall contribution rate of the tertiary industry growth has slightly declined due to the impact of sectors such as public services and management organizations, the development of emerging service industries is a stable support for electricity demand in the tertiary industry, and we expect the demand to continue to grow steadily. The forecasted growth rate for electricity consumption in 2026-2028 is 5.4%/5.2%/5.0%. In 2026, China's GDP growth target range is 4.5% to 5%, and we expect electricity demand to maintain a steady expansion rate consistent with economic growth. Taking into account the macroeconomic growth target and changes in industrial structure, we predict that the growth rate of total electricity consumption in the society in 2026-2028 will be approximately 5.4%/5.2%/5.0% respectively, with an average annual increase in electricity consumption of about 5300-5700 billion kWh. With the push from industrial upgrades and the continuous release of new demand, China's electricity demand absolute increase will maintain strong resilience. Risk factors: Lower-than-expected growth in the total electricity consumption; significant drop in market trading electricity prices; substantial increase in fuel costs; significant fluctuations in the cost of new energy projects; and delays in the progress of electricity system reforms. Investment Strategy: Given the strong outlook for electricity demand, the future of the electricity industry will depend mainly on supply evolution and government attitude. Although market electricity prices are currently affected by supply shocks, as the government gradually introduces measures to stabilize electricity prices and shifts to a more positive attitude towards the generation side, this will push the industry towards a valuation expansion trend. It is recommended to focus on companies with high-quality underlying assets, long-term growth prospects, dividend payment willingness, etc. Preferred options include: 1) leading hydro, nuclear, and coal-fired power companies with high-quality underlying assets; 2) H-share thermal and green power companies with low valuations and attractive dividends; 3) new scenarios and models such as virtual power plants, microgrids, and electricity-computing synergy that benefit from digitalization and the increasing integration of new power systems.