Event:
On March 13, 2022, the Ministry of Finance issued the report on the implementation of the central and local budgets in 2021 and the draft central and local budgets in 2022 (hereinafter referred to as the “report”), which clearly pointed out that “vigorously develop renewable energy”; “Promote to solve the funding gap of subsidies for renewable energy power generation”.
Key investment points:
In 2022, the budget expenditure of central government funds increased by 385.8 billion yuan year-on-year. Government funds are financial funds with special purposes to support the construction of specific public infrastructure and the development of public utilities, including 21 items such as renewable energy development fund (paid into the central treasury). In 2022, the budget expenditure of China’s central government funds reached 718343 billion yuan (only about 300 billion yuan in 20172021), a year-on-year increase of about 385.8 billion yuan, with a year-on-year growth rate of 116%, the highest since 2017.
The shortage of renewable energy fund is expected to be officially solved. Under the background of the continuous expansion of the shortfall of renewable energy fund, the report clearly puts forward the policy goal of “promoting the settlement of the subsidy gap of renewable energy power generation”. We speculate that the year-on-year increase of 385757 billion yuan in the budget of the central government fund in 2022 may be related to the settlement of the shortfall of renewable energy fund. According to our calculation, China’s renewable energy deficit may reach 478.7 billion yuan in 2021, while the additional income from renewable energy electricity price in 2021 is only 100.5 billion yuan. If the year-on-year increase of 385.8 billion yuan is used to solve the shortage of renewable energy, according to the additional income data of electricity price in 2021, the total amount of subsidies that can be issued will reach 486.3 billion yuan, and the shortage of renewable energy in China is expected to be officially solved.
Solving the shortage of renewable energy is expected to repair the performance of new energy power operators. 1) Cash flow and financial expenses: it is expected to repair the cash flow of new energy power operators and reduce their financing in the short term, so as to reduce the dilution of equity due to equity financing and reduce the financial expenses due to debt financing. 2) Accounts receivable and impairment loss: it is expected to reduce the accounts receivable of new energy power operators (accounts receivable / revenue of enterprises such as Cecep Wind-Power Corporation(601016) in the first three quarters of 2021 exceeds 100%) and the impairment loss accrued therefrom (credit impairment loss / revenue of China Three Gorges Renewables (Group) Co.Ltd(600905) in the first three quarters of 2021 reaches – 1.6%).
“Solving the funding gap of renewable energy power generation subsidies” is not only to solve the problem of insufficient subsidies, but also reflects the change of the government’s attitude towards the development of the power industry. Another strong argument is that the government work report in 2022 did not mention the reduction of industrial and commercial electricity prices for the first time.
Thermal power enterprises are expected to continue to implement the profit restoration policy. Since 2021, the coal supply has been tight, and the price of China Shipbuilding Industry Group Power Co.Ltd(600482) coal has risen sharply, up to more than 2500 yuan / ton (q5500, made in Shanxi), which has suppressed the willingness of coal-fired power plants to generate electricity and exacerbated the tense situation of power supply. Since October 2021, China has continuously issued policies to stabilize coal prices and improve the transmission mechanism of coal and electricity prices. In terms of specific actions, in March 2022, the national development and Reform Commission held a teleconference to make comprehensive arrangements for further improving the coal market price formation mechanism; In March of the same year, Yulin city carried out a one week special supervision on the operation of the coal market and formed a long-term mechanism to carry out it at any time, focusing on the signing and performance of medium and long-term contracts, safe production and sales of coal mines in 2022. Under the background of the implementation of the policy, China’s coal price is expected to stabilize and fall, and the cost pressure relief mechanism of coal-fired power plants is expected to be implemented to help thermal power enterprises repair their profits.
Investment suggestions: for the industry, first, the settlement of the shortage of renewable energy fund is expected to repair the cash flow, balance sheet (accounts receivable) and income statement (credit impairment loss and financial expenses) of new energy power operators. Second, under the background of the implementation of the policy of controlling coal price + coal and electricity price transmission, the profits of thermal power enterprises are expected to be repaired. Maintain the industry “recommended rating”. In terms of individual stocks, it is recommended that Huaneng Power International Inc(600011) , China Three Gorges Renewables (Group) Co.Ltd(600905) , and Huadian Power International Corporation Limited(600027) , Shanghai Electric Power Co.Ltd(600021) , Fujian Funeng Co.Ltd(600483) , China Resources Power, China power, Guangzhou Development Group Incorporated(600098) , Guangdong Electric Power Development Co.Ltd(000539) , Shenergy Company Limited(600642) ; Longyuan Power, Tianjin Guangyu Development Co.Ltd(000537) , Jilin Electric Power Co.Ltd(000875) , Nyocor Co.Ltd(600821) , Cecep Wind-Power Corporation(601016) , Cecep Solar Energy Co.Ltd(000591) , Zhongmin Energy Co.Ltd(600163) , CGN new energy; The target of nuclear power operation leader China National Nuclear Power Co.Ltd(601985) ; Distributed photovoltaic field Jinko Power Technology Co.Ltd(601778) , Zhejiang Chint Electrics Co.Ltd(601877) , Jiangsu Linyang Energy Co.Ltd(601222) , Ganghua gas, Skyworth Group, Zhejiang Sunoren Solar Technology Co.Ltd(603105) , Hangzhou Star Shuaier Electric Appliance Co.Ltd(002860) .
Risk tip: focus on the risk that the company’s performance improvement is not as expected, the continuous rise of coal price, the decline of electricity price, the demand for electricity is not as expected, and the risk of policy change.
