KaiYuan Securities: The thermal power business model has reached a turning point, and profitability stability is expected to improve

According to the Zhitong Finance APP, Kaiyuan Securities released a research report stating that from the perspective of the power supply-demand balance sheet, during the "14th Five-Year Plan" period, there may be a nationwide "loose electricity quantity" and "tight electricity power" supply-demand pattern. As the installed capacity of new energy continues to grow rapidly and its proportion increases year by year, the reserve rate of the power system continues to decline, and the power supply-demand may become tighter. The coal power industry is undergoing a transformation from energy sources to capacity sources, with most regions recovering 30% of fixed costs from 2024 to 2025, and some regions with faster transformation recovering 50%; starting in 2026, the national recovery ratio will not be less than 50%.

The main viewpoints of Kaiyuan Securities are as follows:

During the "14th Five-Year Plan" period, there may be a nationwide supply-demand pattern of "loose electricity quantity" and "tight electricity power."

From the perspective of the power supply-demand balance sheet, during the "14th Five-Year Plan" period, there may be a nationwide "loose electricity quantity" and "tight electricity power" supply-demand pattern. As the installed capacity of new energy continues to grow rapidly and its proportion increases year by year, the reserve rate of the power system (confidence capacity / maximum power load - 1) continues to decline, and the power supply-demand may become tighter; in terms of inertia units, the site selection requirements for thermal power are lower than those for hydropower and nuclear power, and the construction cycle is shorter. From the perspective of the power supply-demand balance, the bank expects that in the near future, the installed capacity of coal-fired power generation and gas-fired power generation will maintain steady growth. From the perspective of electricity supply-demand balance, it is expected that during the "14th Five-Year Plan" period, the power generation of coal power will remain flat or slightly decrease, and the utilization hours of coal power may drop to 3,500 hours around 2030.

Short-term catalyst: The ignition price difference of thermal power has basically bottomed out, focusing on the profitability elasticity and turnaround of coal power enterprises.

In the short term, due to the fixed capacity electricity price level and the small capacity of the auxiliary service market, the core factors affecting the profitability of the coal power industry remain the utilization hours and the ignition price difference (the difference between after-tax electricity price and fuel cost). In terms of utilization hours: it is expected that in the next 2-3 years, the supply-demand of thermal power in major coal-producing areas in the north may still be tight, while the supply-demand of thermal power in the eastern region may achieve a tight balance. In terms of ignition price difference: historical data shows that the ignition price difference is relatively high in the northern coal-producing areas, Bohai Rim region, central region, and eastern region; the hydropower provinces of Sichuan, Yunnan, and Qinghai are greatly affected by hydropower prices, and the ignition price difference may be distorted; Guangxi has a low ignition price difference with significant fluctuations. From the perspective of marginal changes, the ignition price difference has increased year-on-year in most provinces of the northern coal-producing areas, Bohai Rim region, and central region; while in most provinces of the southeastern coastal region, the ignition price has decreased.

Long-term logic: Transitioning from energy sources to capacity sources, profitability stability and shareholder returns are expected to improve.

As the issues of capacity compensation and the lack or imperfection of the transmission mechanism for the value of power reliability and flexibility in the auxiliary service market are resolved, the commodity attributes of coal power are expected to gradually restore. In the future, coal power will transition from energy sources to capacity sources, and the sensitivity of the profitability level of the coal power industry to the ignition price difference is expected to gradually decrease. From 2024 to 2025, most regions will recover 30% of fixed costs, and some regions with faster transformation (such as provinces with a high proportion of new energy) will recover 50%; starting in 2026, the national recovery ratio will not be less than 50%. At the same time, most of the existing coal power units in China will approach the 20-year depreciation period during the "14th Five-Year Plan," and after the depreciation period, capacity electricity prices will become an important source of profit for coal power With the gradual improvement of the auxiliary services market, auxiliary service revenue is expected to cover opportunity costs, transformation investments, and marginal fuel costs, bringing reasonable returns.

Beneficiary targets: Focus on national large thermal power and regional thermal power with good supply-demand patterns

In the short and medium term, based on utilization hours and ignition price differentials, it is recommended to focus on thermal power companies in the northern and eastern regions with good supply-demand patterns and high ignition price differentials; in the long term, the profitability stability of thermal power will improve, and shareholder returns are expected to increase. Recommended companies with excellent asset quality and low valuations include HPI (Huaneng International Power), HD Power (Huaneng Power International), CR Power (China Resources Power), Datang Power (Datang Power), JianTou Energy, GDPD (State Power Investment Corporation), Inner Mongolia Huadian, Shaanxi Energy, ZZEPC (Zhejiang Energy Power), Wenergy Co., Ltd., Jiangsu Guoxin, ShenNeng Co., Ltd., Funeng Co., Ltd., Baolihua, etc