Since July, a number of listed companies have successively disclosed their performance forecasts for the first half of 2024. According to incomplete statistics by First Financial Daily reporters, as of the close on July 24, more than 70% of the 42 power generation companies that have disclosed their performance forecasts are expecting good results.

The main reasons for the expected increase in performance of the aforementioned power generation companies include: the year-on-year decline in the procurement costs of fuels such as coal; the continuous improvement in the water conditions of the company's hydropower plants in the first half of the year, leading to an increase in hydropower generation and a boost in profits; the continuous expansion of the installed capacity of new energy sources such as photovoltaic and wind power, and a year-on-year increase in clean energy generation, etc.

Recently, many listed companies have increased their investment in power generation businesses, acquiring energy assets in large amounts, or establishing joint ventures to operate related power generation businesses. This is to balance the company's layout of clean energy power generation such as hydropower, wind power, photovoltaic, and peak-load thermal power, forming a power structure that complements each other with "wind, light, water, and fire."

Seventy percent of the companies are in the black.

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Looking at the lower limit of the forecasted net profit, Guodian Power (600795.SH), Datang Power (601991.SH), and China Power (02380.HK) are among the top three with a minimum forecasted net profit increase of over 2.7 billion yuan. The other two companies in the top five power generation groups, Huadian International (600027.SH) and Huaneng International (6000011.SH), have not yet disclosed their performance forecasts for the first half of the year.

In terms of the forecasted growth rate, 14 companies are expected to have a minimum profit increase of over 100% in the first half of the year. Among them, Three Gorges Water Conservancy (600116.SH), Huadian Energy (600726.SH), and Qianyan Power (002039.SZ) are among the top three with a net profit year-on-year growth rate of about 565%, 433%, and 270%, respectively.

Based on the performance forecasts of the aforementioned companies, the decline in coal prices, abundant water supply, and increased output from new energy power generation are important factors for their significant performance growth in the first half of the year.

"The company expects to achieve a net profit attributable to shareholders of listed company shareholders of about 2.68 billion yuan to 2.87 billion yuan in the first half of the year, a year-on-year increase of about 45% to 55%," China Power introduced. The main reason for the expected increase in performance in the first half of the year is the abundant rainfall in the river basin where the company's hydropower plants are located, resulting in a significant increase in hydropower generation. In addition, the performance of the newly acquired clean energy power generation project companies has been included in the company's consolidated accounts since the fourth quarter of 2023, which has greatly increased the company's clean energy power generation profits. Moreover, benefiting from the decline in the average sales price of coal during the period, the fuel cost of the company's thermal power segment has been reduced.

The profits of thermal power companies are highly related to coal prices. First Financial Daily reporters noticed that under the high coal prices in 2021 and 2022, many thermal power companies suffered losses, for example, Huaneng Group suffered consecutive losses of 10.26 billion yuan and 7.39 billion yuan.

In the first half of the year, the change in supply and demand relationship led to the decline in fuel costs. According to data from Zhuochuang Information, the average price of 5,000 kcal thermal coal in Shandong region in the first half of the year was 803.22 yuan/ton, a year-on-year decrease of 13.9%. Specifically on the supply side, according to data from the China Coal Transportation and Sales Association, the coal production in China in the first five months of this year reached the second-highest level in the same period of history, with a scale above the original coal production of 1.86 billion tons, of which the production in May basically reached the highest in history, and coal production maintained a relatively high level; coal imports continued to grow rapidly. From January to May, China's cumulative coal imports reached 205 million tons, a year-on-year increase of 12.6%, and the import volume set a new high for the same period in history. On the demand side, due to the poor operation of industries such as steel and building materials in the first half of the year, coupled with the squeeze of hydropower and new energy, the consumption of commercial coal in China from January to May increased slightly year-on-year, but the growth rate fell back. Xinhua Securities analyst Gao Xing pointed out that considering the current relatively sufficient supply of thermal coal and the high level of coal inventory at power plants, it is expected that the de-stocking of port coal inventory will be under pressure, and the rebound space of thermal coal prices is relatively limited.In addition to the decline in coal prices, the aforementioned power generation companies also highlighted the positive impact of improved hydropower inflow conditions and the growth of new energy business. Three Gorges Water Conservancy stated that in the same period of 2023, the water inflow in the company's hydropower station basin was severely scarce, while the current period has seen better inflow. As a result, the company completed about 1.256 billion kilowatt-hours of self-generated hydropower grid-connected electricity in the first half of the year, a year-on-year increase of approximately 48.64%, adding about 140 million yuan in profit, accounting for about 40% to 50% of the company's net profit attributable to the parent company.

The increase in new energy grid-connected electricity not only reduces the companies' electricity purchasing costs but also increases the revenue from related businesses. Chenzhou International (600969.SH) introduced that in the first half of the year, the company's supply area added 231,500 kilowatts of new energy, increasing the grid-connected electricity by about 115 million kilowatt-hours compared to the same period last year, and the comprehensive electricity purchasing cost was lower than the same period last year. In addition, Guangxi Energy (600310.SH) introduced that in the first half of the year, some units of its subsidiary, Guangxi Guangtou Offshore Wind Power Development Co., Ltd., achieved grid-connected power generation, realizing a year-on-year increase of about 7 million yuan in net profit attributable to the parent company.

Significant increase in power generation assets

Recently, several power generation companies have optimized the power source structure layout of their power generation business through acquisitions or the establishment of joint ventures.

For example, Changyuan Electric Power (000966.SZ), which mainly operates thermal power, announced on the evening of July 23 that the company signed a cooperation agreement on new energy project investment and development with the People's Government of Songzi City. Both parties will cooperate to develop and construct new energy projects with a total installed capacity of no less than 1.5 million kilowatts (including no less than 650,000 kilowatts of wind power) within the jurisdiction of Songzi City, Hubei Province, with a total project investment of about 7 billion yuan. The company stated that this cooperation is beneficial for accelerating the development and construction of new energy projects within the jurisdiction of Songzi City, further increasing the company's new energy installed capacity ratio, and optimizing the power source structure.

Just a few days earlier, on July 13, Changyuan Electric Power had just issued a prospectus for the issuance of shares to specific objects, intending to raise no more than 3 billion yuan (including this number), and almost all of it will be used for 10 photovoltaic power station projects with a total scale of about 2.35GW after deducting the issuance expenses.

In recent years, Changyuan Electric Power has been vigorously increasing its new energy transformation. The company publicly stated at a research activity held in May this year that due to changes in the power market, the company currently has a cautious attitude towards thermal power projects. Except for the under-construction Han Chuan Phase IV 2x1 million kilowatt thermal power project, it will not develop thermal power projects during the "14th Five-Year Plan" period in principle, and will lead the company's transformation and development with new energy, and will invest more in the fields of wind power, photovoltaics, and other new energy fields in the future. "By the end of the '14th Five-Year Plan', the company's total new energy installed capacity will exceed 4 million kilowatts."

At present, the construction of a new type of power system with new energy supply as the main body in China is accelerating. According to data from the China Electricity Council, in the first half of the year, the country added 153 million kilowatts of new power generation installed capacity, of which 128 million kilowatts of new grid-connected wind power and solar power installed capacity accounted for 84% of the total new power generation installed capacity.

However, in terms of power generation, the current utilization rate of non-fossil energy is not high. The "China Power Development Report 2024" shows that in 2023, the national power generation was 9.3 trillion kilowatt-hours, of which non-fossil energy power generation accounted for only 36.4% of the total national power generation, although its installed capacity accounted for 53.9%. The thermal power generation with an installed capacity accounting for 39.9% still accounts for as high as 58%, and it is still the largest contributor to the national power generation.

A power industry practitioner told the First Financial Journalist that "new energy power generation has many advantages, but its output also has randomness and volatility, and it is difficult to independently ensure reliable power supply, which needs to rely on thermal power and other supporting power sources to provide capacity assurance."Additionally, First Financial Daily reporters have observed that against the backdrop of the accelerated development of the domestic electricity market, as new energy accelerates its entry into the market, the volatility of electricity prices on the generation side has intensified, leading to pressure on the revenue of new energy. JinKong Electric Power (000767.SZ) recently pointed out in its performance forecast that due to the relaxed supply and demand situation in the electricity market and full competition in the spot market, the overall electricity market price in Shanxi Province has declined year-on-year, and the company's net profit attributable to the mother company is expected to be a loss of 370 million to 400 million yuan in the first half of the year.

"In the next three years, focusing on the construction of a new type of power system, the layout of conventional hydropower, pumped storage, wind power, solar power generation, and coal-fired power generation will be optimized and coordinated." On July 16, at the launch of the "China Electric Power Development Report 2024," Liu Qiang, Dean of the Electric Power Development Research Institute of the Electric Power Planning and Design General Institute, proposed such a plan.

Recently, several new energy power generation companies have also expanded into the peak regulation role of thermal power. In mid-June, Gansu Energy (000791.SZ) announced that the company's acquisition of 66% of the equity of Gansu Electric Investment Changle Power Generation Co., Ltd. (referred to as "Changle Company") and the accompanying fundraising of no more than 1.9 billion yuan and related transaction plan were approved. After the transaction is completed, Gansu Energy will add thermal power generation business, effectively balancing the company's hydropower, wind power, photovoltaic and other clean energy power generation and peak regulation thermal power layout, and optimizing the power source structure.

"As the construction of the electricity market accelerates, thermal power will achieve stable and rationalized revenue through 'power quantity and electricity price (transmitting fuel costs) + capacity electricity price (recovering fixed costs) + ancillary services (obtaining adjustment revenue), and the valuation of the sector is expected to increase." An analyst from an electric power industry institution also added that domestic new energy has reached the bottom area. With the focus of the electricity system reform on new energy, the acceleration of green electricity and green certificate transactions, and the resolution of absorption issues, the bottom space of the domestic green electricity sector is also expected to reach an inflection point.