Huatai Securities: Reiterates Comprehensive Bullish Stance on Power Sector, Including Green Electricity from Hydro, Nuclear, Wind, Solar, and Biomass

Huatai Securities Research Report states that in March 2026, Liaoning issued a document establishing a sustainable nuclear power price settlement mechanism. Huatai Securities believes that the implementation of the nuclear power pilot signifies that central and local governments have, from a mechanism perspective, brought a phased end to the ongoing “coal price decline, electricity price decline” trend since 2023. It also indicates that the profitability pressure faced by clean energy sources, represented by nuclear power, over the past three years may soon reach a major policy turning point. Meanwhile, the decline in coal prices itself is unsustainable; the blockade of the Strait of Hormuz has gradually strengthened market confidence that fossil fuel prices are prone to rise and difficult to fall, which is an important positive signal for non-fossil energy sources in China that have been dragged down by falling primary energy prices over the past three years. We reaffirm a bullish outlook on the electricity sector, including green power such as hydro, nuclear, wind, solar, and biomass, which are expected to benefit fully.

Full Text

Huatai | Public Utilities & Environmental Protection: Nuclear Power Mechanism Sets the Foundation for China’s Green Electricity Price Turning Point

In March 2026, Liaoning issued a document establishing a sustainable nuclear power price settlement mechanism. We believe that the implementation of this pilot indicates that central and local governments have, from a mechanism perspective, brought a phased conclusion to the ongoing “coal price decline, electricity price decline” trend since 2023. It also suggests that the profitability pressure faced by clean energy sources, represented by nuclear power, over the past three years may soon see a significant policy turning point. Additionally, the decline in coal prices itself is unsustainable; the blockade of the Strait of Hormuz has gradually built market confidence that fossil fuel prices are prone to rise and difficult to fall. This is an important positive signal for non-fossil energy sources in China, which have been affected by falling primary energy prices over the past three years. We reaffirm a bullish outlook on the power sector, including hydro, nuclear, wind, solar, and biomass, which are expected to benefit fully.

Core Views

Nuclear power price mechanism announced, policy support ensures profitability of renewable energy

Under the guidance of the National Development and Reform Commission, Liaoning has taken the lead in piloting a sustainable nuclear power price settlement mechanism, with 70% of the electricity volume under the mechanism and the mechanism price equal to the approved price. We estimate that the new regulation will increase the net profit of related companies by about 700 million yuan in 2026, implying an ROE of 8% and ROA of 2% for the relevant plants, or a reasonable return recognized by the government for power companies. This also dispels the long-standing market misconception that “electricity prices do not account for costs.” In our March 2025 report “Quantifying the Price and Profit Elasticity of the 14th Five-Year Plan,” we calculated that a full investment IRR for nuclear power of 6% requires a electricity price of 0.37 yuan/kWh. It is also difficult for photovoltaic power to sustain long-term prices significantly below 700 yuan/ton coal. We believe that even if coal prices do not rebound, renewable energy prices will eventually reverse through market-based or policy-driven pathways.

Fossil fuels and electricity products are globally mobile, which will eventually narrow the price gap

In the second half of 2025, industrial electricity prices in China and the US have begun to frequently invert, and from 2026 onward, this “scissors gap” is expected to continue widening. The fundamental reason is the divergence in primary energy prices between China and the US since 2024 (China’s coal prices falling vs. US gas prices rising). Although electricity, as a secondary energy, cannot be widely traded across borders, primary energy has global mobility. The blockade of the Strait of Hormuz may accelerate the transmission of fossil fuel prices under supply contraction; additionally, the broader global flow of electricity products and the potential for tokenization to facilitate cross-border trade could serve as demand drivers to narrow electricity price differences in the AI era. We estimate that if port prices for 5500 kcal coal rise by 50 yuan/ton (tax included), the fuel cost for thermal power will increase by 1.3 cents per kWh; considering China’s 2025 power generation mix and marketization levels, wholesale electricity prices could increase by about 3%.

Pricing of “green electricity” attributes will gradually strengthen during the 14th Five-Year Plan

So far, China’s electricity prices have not fully priced in carbon emission costs or the green attributes of clean energy. During the 14th Five-Year Plan, both domestic and international mechanisms will accelerate this trend. 1) Green certificate prices have increased to an average of 6 yuan per certificate since 2026, providing a premium of 0.6 cents per kWh for green power; green certificate prices are only 9% of the carbon prices during the same period; if “carbon certificate parity” is achieved, wholesale electricity prices could increase by 15%. 2) Carbon prices are rising: China has increased by 50 yuan/ton, equivalent to an increase of 0.047 yuan/kWh in coal-fired power costs, which could directly push up market-based prices for thermal power. 3) Direct connection of green power promotes revaluation of renewable energy assets: off-grid projects considering EU high carbon prices and subsequent tariff policies could save costs of up to 0.4 yuan/kWh, and grid-connected projects without considering CBAM could save 0.01-0.07 yuan/kWh in electricity prices.

Investment conclusions

1. The nuclear power sector is likely to benefit first from policy implementation, with major inflection points expected in the fundamentals of related nuclear companies; 2) We recommend wind and solar operators, as photovoltaic low prices are unlikely to be sustained, and the green attributes need further demonstration. Whether driven by carbon prices boosting thermal power prices or renewable energy value directly reflected through green certificates or green power direct connection, profit elasticity is significant; 3) Continue to recommend scarce green power direct connection targets in A-shares.

Risk warnings: Progress of Liaoning nuclear pilot (e.g., whether other provinces will follow, whether it will be promoted nationwide), fluctuations in coal prices (Hormuz Strait blockade duration, Indonesia coal export quotas, domestic supply-side reforms), and whether China’s power industry supply growth can decline as scheduled.

(Source: People’s Financial News)