Huatai Securities: Environmental Value Reassessment Will Unfold Along Three Main Tracks - Focus on Green Fuel Sector

Huatai Securities Research Report states that the market consensus views NDC (Nationally Determined Contributions) as a long-term concept, oversupply of green certificates makes prices hard to rise, and green energy operators are merely “quasi-debt” defensive assets (Hong Kong stocks at only 0.6-0.9x PB-LF). We believe: 1) The countdown to peak carbon emissions between 2028-2030 has only 2-4 years remaining, and NDC may become a hard constraint for annual assessments; 2) Mechanism electricity transfer and mismatched validity periods lead to a supply shortage of deliverable new certificates, with February 2026 trading share reaching 84%, reversing the supply-demand pattern; 3) The market has not priced in the “growth attributes” of green energy operators, as green certificate returns become more explicit, potentially driving the valuation center of A/H shares of green energy higher. We believe environmental value revaluation will unfold along three main lines, benefiting green energy operators and high-energy-consuming leading green energy direct connections, with a focus on the green fuel sector.

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Huatai | Deep Dive into Utilities & Environmental Protection: Reassessing Green Energy Value from Energy Security and Emission Reduction Constraints

Differences from the market: The market consensus considers NDC as a long-term concept, oversupply of green certificates makes prices difficult to increase, and green energy operators are merely “quasi-debt” defensive assets (Hong Kong stocks at only 0.6-0.9x PB-LF). We believe: 1) The countdown to peak carbon emissions between 2028-2030 is only 2-4 years away, and NDC may become a hard constraint for annual assessments; 2) Mechanism electricity transfer and mismatched validity periods lead to a supply shortage of deliverable new certificates, with February 2026 trading share reaching 84%, reversing the supply-demand pattern; 3) The market has not priced in the “growth attributes” of green energy operators, as green certificate returns become more explicit, potentially driving the valuation center of A/H shares of green energy higher. We believe environmental value revaluation will unfold along three main lines, benefiting green energy operators and high-energy-consuming leading green energy direct connections, with a focus on the green fuel sector.

Core Views

As the 2035 NDC (Nationally Determined Contributions) hard constraint is implemented, China’s climate action shifts from “intensity control” to “total emission reduction,” entering a new era of environmental value pricing. Our estimates suggest that the supply-demand reversal will push the green certificate price center to more than double the current level, significantly increasing the per-kWh revenue and project returns of green energy operators, driving a restructuring of sector valuation systems, and creating new opportunities for high-energy-consuming industry transformation and carbon service-related sectors. Recommendations: 1) Low-valuation Hong Kong-listed green energy operators, fully benefiting from profit growth and valuation recovery driven by electricity-certificate-carbon linkage; 2) High-energy-consuming leaders with integrated green energy capabilities, effectively avoiding carbon cost erosion and export compliance risks; 3) Green fuels benefiting from international supply chain carbon barrier upgrades and domestic renewable energy substitution demand, with strong policy rigidity and resource barriers.

NDC Hard Constraint Anchors Peak Carbon Node, Clear Demand Floor for Green Energy by 2035

We convert the 2035 NDC target into quantifiable short-term constraints, estimating that domestic carbon emissions will peak between 2028-2030, with non-fossil energy consumption share not less than 30% by 2035. Based on electricity volume, the 2035 green energy demand will be no less than 6.59 trillion kWh. From 2026 to 2035, annual wind and solar capacity additions will average 415 million kW, significantly higher than the 261 million kW average during the 14th Five-Year Plan. Six high-energy-consuming industries and data centers face explicit rigid requirements for green energy absorption, forming the core support for green certificate demand. We expect green certificate demand to surge to 3.0-3.3 billion units by 2030, with clear growth.

Policy Reshapes Green Certificate Supply-Demand Pattern, Trading Scarcity Continues

We believe policies have reshaped the supply-demand structure: The 136th document in 2025 clarifies that mechanism electricity transferred to provincial accounts will no longer generate repeated benefits, reducing green certificate supply from power generators; combined with the two-year validity period constraint, near-expiry green certificates (produced in 2024) saw prices fall to 1.21 yuan per certificate in February 2026, while new certificates (produced in 2025) rose to 5.90 yuan, with a premium of 380%. Document 262 includes six high-energy-consuming industries and data centers in mandatory consumption assessments, shifting green certificate demand from voluntary to rigid compliance, with tradable rates expected to increase from 64.2% to focus on high-quality projects.

Electricity-Certificate-Carbon Synergy Mechanism Takes Shape, Rising Carbon Prices Drive Green Certificate Revaluation

The linkage between domestic carbon prices and green certificate prices has strengthened. We estimate that a 10 yuan/ton increase in carbon price raises the theoretical value of green certificates by 1.5-2.0 yuan each. As the national carbon market expands to key industries like steel, cement, and aluminum smelting, covering a large volume of emissions, we expect carbon prices to reach 100 yuan/ton by 2027-2028, corresponding to a theoretical green certificate value of 12-15 yuan each, a 103%-154% increase from February 2026 prices. The explicitness of green certificate returns will shift the environmental value of new energy from “implicit subsidies” to “explicit pricing,” opening space for valuation revaluation of the green energy sector.

Differences from Market Views

The market consensus considers NDC as a long-term concept, oversupply of green certificates makes prices difficult to increase, and green energy operators are merely “quasi-debt” defensive assets (Hong Kong stocks at only 0.6-0.9x PB-LF). We believe: 1) The countdown to peak carbon emissions between 2028-2030 is only 2-4 years away, and NDC may become a hard constraint for annual assessments; 2) Mechanism electricity transfer and mismatched validity periods lead to a supply shortage of deliverable new certificates, with February 2026 trading share reaching 84%, reversing the supply-demand pattern; 3) The market has not priced in the “growth attributes” of green energy operators, as green certificate returns become more explicit, potentially driving the valuation center of A/H shares of green energy higher.

Benefiting Green Energy Operators and High-Energy-Consuming Leading Green Energy Direct Connections

We believe environmental value revaluation will unfold along three main lines: 1) Benefiting from profit growth and valuation shifts driven by electricity-certificate-carbon linkage; 2) High-energy-consuming leaders with green energy integration capabilities will see green energy self-sufficiency become a core competitive advantage, locking in low-cost green energy to avoid carbon cost erosion and CBAM export risks; 3) Under total emission reduction policies, the sector has high expectations, with a focus on green fuels.

Risk Tips: Policy implementation delays; Downward risk of green energy electricity prices; Carbon price volatility risk; Risks of renewable energy technological substitution.

(Source: Jiemian News)