According to the report published by Huafu Securities, expanding the scope of green certificate issuance and optimizing trading rules domestically can promote the consumption of renewable energy electricity. The new hydropower projects invested in 2023 can also be included in the green certificate issuance system. In terms of individual stocks, it is recommended to pay attention to the hydropower sector, including China Yangtze Power (600900.SH) and Guizhou Qianyuan Power (002039.SZ), and cautiously consider SDIC Power Holdings (600886.SH), Huaneng Lancang River Hydropower Inc. (600025.SH), and Sichuan Chuantou Energy (600674.SH); in the green power sector, it is recommended to pay attention to China Three Gorges Energy (600905.SH), and cautiously consider China Longyuan Power (001289.SZ), etc. The environmental protection industry has entered a stage of high-quality development. Solid waste asset operation is stable and has the advantage of obtaining returns. It is recommended to pay attention to the solid waste treatment sector, such as Wangneng Environment (002034.SZ).

Huafu Securities' main points are as follows:

Market review: From July 8th to July 12th, the power and gas sectors fell by 0.22% and 0.76%, respectively. The gas and water affairs sectors rose by 1.56% and 0.35%, respectively. During the same period, the CSI 300 index rose by 1.20%.

The scale of single-batch green certificate trading reached a new high nationwide, and the scope of green certificate issuance continued to expand steadily. On July 8th, key energy-use enterprises such as Guangdong Energy Group and Shenzhen Energy Group completed the largest single-batch green certificate transaction in the country at the Guangzhou Power Exchange, with a total of 24.82 million green certificates traded, equivalent to 24.8 billion kilowatt-hours of electricity. This large-scale inter-regional green certificate trading promotes the consumption of photovoltaic new energy. On April 26th, 2024, the Comprehensive Department of the State Energy Administration released the "Renewable Energy Green Power Certificate Issuance and Trading Rules (Solicitation Draft)" which clearly stated that the on-grid power generation capacity of renewable energy projects such as wind power, solar power, biomass power, geothermal power, and ocean energy power, as well as the on-grid power generation capacity of new fully market-oriented conventional hydropower projects invested after January 1st, 2023, shall issue tradable green certificates. Recently, the Two Gorges and Xiangjiaba power stations were awarded the first batch of large-scale hydropower green certificates in the country. The issuance of green certificates for large-scale hydropower will further consolidate the status of hydropower as green and clean energy and is conducive to the consumption of hydropower energy.

The social security fund participated in the China National Nuclear Power targeted stocks issuance, reflecting the determination to guarantee the long-term and secure development of the energy industry. On July 11th, China National Nuclear Power released the "Plan for Issuing A-shares to Specific Objects", and after completing the private placement, the social security fund will participate in the company's governance as the second largest shareholder, improving the company's governance level and market competitiveness. In the future, it is expected to further align the company with relevant strategic resources, reflecting the determination of the state to ensure the long-term and secure development of the energy sector. In the future, the social security fund's layout in green finance investment is expected to further deepen, promoting the development of a green and low-carbon economy and achieving dual benefits of economic and social benefits.

The environmental protection industry has entered a stage of high-quality development, and solid waste assets are worth paying attention to. Recently, the Science and Finance Department of the Ministry of Ecology and Environment and the China Environmental Protection Industry Association jointly issued the "2023 China Environmental Protection Industry Development Status Report". In 2022, the national environmental protection industry's operating income is about 2.22 trillion yuan, an increase of about 1.9% compared to 2021, of which the operating income of environmental services is about 1.44 trillion yuan, a year-on-year increase of about 1.2%. After the high-speed development during the "13th Five-Year Plan" period, the growth rate of the environmental protection industry has slowed down after 2020, and the industry has entered a stage of high-quality development. Based on sample data, the turnover rate of accounts receivable in the solid waste disposal and resource utilization sector is significantly higher than the industry average. In 2022, the turnover rate of accounts receivable in the solid waste sector was 4.6, higher than the 3.2 in the water affairs sector; the asset-liability ratio reached 60% and is equivalent to the industry average, slightly lower than the water affairs sector. With the solid waste assets such as garbage incineration power generation entering a stable operation stage, the asset-liability ratio is expected to be optimized.

Investment advice: In the domestic market, pushing for consumption of renewable energy electricity by expanding the scope of green certificate issuance and optimizing trading rules. The newly invested hydropower projects after 2023 can also be included in the green certificate issuance system. It is recommended to pay attention to the hydropower plate of China Yangtze Power, Guizhou Qianyuan Power, and cautiously recommended to pay attention to SDIC Power Holdings, Huaneng Lancang River Hydropower Inc., and Sichuan Chuantou Energy; It is recommended to pay attention to the green electricity sector of Three Gorges Energy, and cautiously recommended to pay attention to China Longyuan, Zhejiang Energy, and China Green Electricity Investment of Tianjin. The environmental protection industry has entered a stage of high-quality development. The solid waste asset operation is stable and has repayment advantages. It is recommended to pay attention to the solid waste management sector of Wangneng Environment, Grandblue Environment, Chongqing Sanfeng Environment Group Corp., Yongxing Shares, Beijing Geoenviron Engineering & Technology, Inc., and EB Environment.

Risk warning: Decrease in demand; price decrease; increase in cost; decrease in precipitation; pressure on local government finances.