Key investment points:
Looking back on 2021, electricity price “can rise and fall” has become the annual keyword, new energy power generation has performed well, and the main line of “three modernizations” continues. In 2021, stimulated by multiple favorable factors such as industrial policies and market supply and demand, the power sector outperformed the market as a whole. As of December 22, 2021, the power index rose by 34.12%, outperforming the Wande all a index by 25.47 percentage points. In terms of sub sectors, thermal power increased by 40.12%, hydropower increased by 20.95%, and new energy power generation increased by 49.93%. The performance of new energy power generation represented by wind power and photovoltaic was particularly strong. Electricity price has changed from “only falling but not rising” to “can rise and fall”, driving the investment logic of the whole power sector, especially the thermal power sector, to change; The “three modernizations” main line of electrification, cleaning and marketization continues. As the key main line, cleaning and marketization have brought continuous investment opportunities to the power sector in 2021.
Looking forward to 2022: the market-oriented electricity price mechanism based on “supply and demand + cost” will be truly established, and the power market with full participation of clean energy will initially take shape. 1) The electricity price formation mechanism is the “anchor” of the whole power industry. From “only falling but not rising” to “rising and falling”, the fundamental shift of power market-oriented reform will bring about a deep-seated investment logic transformation of the industry. 2) The main line and long logic of “three modernizations” in the power industry of electrification, marketization and cleanliness will continue. 3) In the main line of “three modernizations”, cleaning has become a Changpo track with growth, profitability and certainty. Investment opportunities have shifted from poor industry cognition to poor stock expectations, especially the growth of individual stocks. 4) It is worth looking forward to the participation of new energy in market-oriented transactions, or it will further open the profit space of the industry. 5) The long-term investment logic of thermal power, hydropower and nuclear power lies in new energy. Compared with pure new energy operators, the advantages of hydropower, thermal power and nuclear power lie in abundant cash flow and sufficient peak shaving capacity. The transformation effect will be reflected in performance and valuation. 6) The opportunity of hydropower lies in pumping and storage and water scenery integration base in the basin. 7) In 2022, thermal power will see the double repair of performance + valuation, in which the valuation repair comes from two aspects: the “rise and fall” of electricity price and the transformation of new energy.
New energy power generation: growth, profitability and certainty, long-term optimistic. 1) Under the “3060” carbon neutralization strategy, the long-term growth of new energy power generation is certain. In 2021, the policy combination with the main contents of “promoting photovoltaic in the whole county”, “wind control plan for thousands of villages and thousands of villages”, the transformation of old wind farms “replacing small with large”, land scenery large base project and offshore wind power base project appeared frequently, which further boosted the market expectation and industry prosperity; 2) The cost reduction trend remains unchanged. In terms of photovoltaic, the price of silicon materials and components has begun to loosen recently. The downward trend of silicon wafer capacity release and photovoltaic cost has been determined next year. In addition, the continuous improvement of power generation efficiency of cells will also boost the long-term trend of cost reduction in the industry. In terms of wind power, after the rush to install offshore wind power, the cost reduction in construction links, the expiration of subsidies forced the wind turbine manufacturers to reduce prices, the decline in the prices of bulk commodities such as upstream steel, the improvement of power generation efficiency of large MW wind turbines and the reduction of installation points will promote the continuous cost reduction trend of offshore wind power and onshore wind power. 3) Carbon trading and electricity market-oriented trading will further open the profit space of new energy power generation.
Thermal power: focus on the double repair of performance + valuation. Our view on thermal power remains unchanged: we look at the coal price in the short term, the performance repair and valuation repair opportunities jointly determined by supply and demand, coal price and marketization in the medium term, and the logical change of transformation of new energy in the long term. Specifically, by 2022, the investment logic of thermal power sector is the dual repair of performance + valuation, in which the valuation repair comes from two aspects: the “rise and fall” of electricity price and the transformation of thermal power into new energy.
Hydropower: focus on pumping and storage and water scenery integration base in the basin. Hydropower enterprises have natural advantages in cash flow and peak shaving capacity. On the one hand, the future development opportunities are to build pumping and storage power stations to provide peak shaving services for power grid systems or new energy operators, and on the other hand, to develop water scenery integration bases in the basin.
Investment advice It is recommended to pay attention to Huaneng Power International Inc(600011) , Fujian Funeng Co.Ltd(600483) , Jilin Electric Power Co.Ltd(000875) , Jiangsu New Energy Development Co.Ltd(603693) , China National Nuclear Power Co.Ltd(601985) , Guangdong electric power, Huaneng Lancang River Hydropower Inc(600025) , and raise the rating of the power industry as “recommended”.
Risk tips: 1) the rise of coal price exceeds expectations; 2) The increase of electricity price is less than expected; 3) Repeated outbreaks have led to great changes in power supply and demand; 4) The large-scale increase of scenery leads to the increase of wind and light abandonment rate; 5) The upstream raw materials of wind turbine and photovoltaic increased sharply; As a result, the installed capacity of Fengguang is less than expected; 6) Water and electricity were not as expected.