According to a research report issued by Huatai Securities, the National Development and Reform Commission and the Energy Administration jointly issued the “Notice on Establishing and Improving the Market Price Mechanism for Electric Power Auxiliary Services” on February 9, 2024.
The Zhitong Finance App learned that the research report issued by Huatai Securities said that on February 9, 2024, the National Development and Reform Commission and the Energy Administration jointly issued the “Notice on Establishing and Improving the Market Price Mechanism for Electricity Auxiliary Services”. At the national level, uniformly establish and improve the market price mechanism for electricity auxiliary services, standardize price transmission, clarify costs borne by users (limited to losses that cannot be compensated in the electric energy market), and promote fair participation by diverse players such as energy storage and demand side. The policy may reduce peak revenue in the short term; it is optimistic about the transformation of thermal power's profit model in the long term. As cyclical attributes weaken and high dividends are realized, the bank is confident that the future valuation of thermal power will increase.
The main views of Huatai Securities are as follows:
Uniformly establish and improve the market price mechanism for electricity auxiliary services at the national level
On 2024/2/9, the National Development and Reform Commission and the Energy Administration jointly issued the “Notice on Establishing and Improving the Market Price Mechanism for Power Auxiliary Services”, deciding to unify the establishment and improvement of the market price mechanism for power auxiliary services at the national level. The relevant policies will be implemented on 2024/3/1. The bank believes that this policy plays an important role in the reform of the power system and the construction of a new power system. In recent years, with the rapid growth in the scale of new energy generation, China's power auxiliary service market has developed rapidly, and various regions have gradually explored the establishment of price mechanisms such as peak shifting, frequency modulation, and backup. The current policy uniformly establishes and perfects price mechanisms at the national level, unifies and clarifies pricing rules, regulates price transmission, clarifies costs borne by users (limited to losses that cannot be compensated in the electric energy market), and promotes fair participation by diverse actors such as energy storage and demand.
Short-term peaking revenue may be compressed, but the gradual promotion of the spot market will further open up space
The notice suggests that in regions where the electricity spot market continues to operate, markets with peak shifting and similar functions are no longer in operation; in the rest of the regions, research promotes hydropower participation in paid peak shifting in due course; at the same time, for the first time, the policy clarifies the principle that the consumption cost of new energy sources must not be higher than the feed-in tariff for affordable new energy sources in regions where the spot market has not been developed. According to the bank's incomplete statistics, peak price caps in some current markets may be lowered, which will affect peak-shifting revenue for thermal power, energy storage, etc.; however, after the full development of local spot markets, the upper limit of peak-shifting prices essentially depends on the upper price limit of the spot market (significantly higher than the local coal-fired benchmark electricity price), and after regulatory resources enter the market, they will obtain higher returns through the spot market.
The cyclical nature of thermal power is gradually weakening. As dividends are gradually realized, future valuations have the potential to rise
The bank believes that the current policy further clarifies the profit model of thermal power: fixed cost of capacity electricity price recovery, variable cost of electricity price recovery, and auxiliary service recovery adjustment costs. Following the November 2023 electricity price policy, this notice continues to promote the transformation of thermal power from power generation to peak shifting. The “coal price vs. electricity price” profit model of thermal power companies will gradually weaken, and utility attributes will gradually increase. What needs to be clarified is that short-term thermal power fundamentals and the determinants of stock prices cannot be separated from coal prices, but as the profit cycle attributes of thermal power gradually weaken and high dividends are realized, the bank is confident that future valuations will increase.
Risk warning: 1) Policy implementation has fallen short of expectations; 2) Fluctuations in coal prices have exceeded expectations.