CITIC Securities: Policies Help Electricity Prices Bottom Out Early, Industry Valuations Resume Expansion

On March 24, CITIC Securities released a research report on public utility and environmental protection. The study points out that Liaoning Province has introduced a nuclear power mechanism electricity price policy, which significantly stabilizes the return on nuclear power within the province. Other coastal nuclear power provinces may follow suit in the future; the trend of using policy measures to stabilize returns is expected to spread to other regions and power sources. The government’s attitude is shifting from lowering power generation side prices to ensuring reasonable and stable returns for power producers.

We estimate that the market supply and demand clearing point may occur around 2028, but policy guarantees are likely to help bring forward the bottom of electricity prices, improving industry fundamentals and overall valuation expectations.

Liaoning Nuclear Power Mechanism Electricity Price Introduced, Significant Stabilization of Returns.

According to the Liaoning Development and Reform Commission, in 2026, Liaoning Province will establish a differential settlement mechanism for nuclear power outside the market. The differential settlement costs will be temporarily included in system operation expenses and shared by all industrial and commercial users. The mechanism electricity price is 0.3798 yuan per kWh, with about 70% of electricity settled at this price, and the remaining at market prices. In 2026, we expect the average on-grid electricity price at the Hongyanhe Nuclear Power Plant to be 0.34 yuan per kWh, higher than the annual centralized bidding average of 0.31 yuan but below the approved price of 0.38 yuan. After the policy was introduced, we estimate that in 2026, the shareholder returns for Hongyanhe are around 12%, indicating a clear policy effect in stabilizing returns.

Expected Rebalancing of the Power Market Around 2028.

Our calculations show that from 2026 to 2027, although new installed capacity growth slows somewhat, it remains high, with effective installed capacity growth rates of 8.2% and 6.5%, respectively. These are expected to be 2.7 and 1.3 percentage points faster than the growth in electricity consumption during the same period. By 2028, we expect the year-over-year growth rate of effective installed capacity to fall to 5.6%, roughly aligning with the projected 5.0% growth in electricity consumption, indicating that the power market will rebalance after a period of oversupply.

Strengthening Policy Support May Bring Forward the Bottom of Power Prices.

The tangible policy measures outside the market are playing a role. Similar to Liaoning’s nuclear power mechanism electricity price policy, other regions and power sources are expected to see continuous policy support measures outside the market. These measures are likely to help bring forward the bottom of electricity prices, earlier than the point where prices would naturally bottom out based solely on supply and demand. Additionally, ensuring reasonable returns for power sources through policy support indicates a shift in government attitude from simply lowering power generation prices to stabilizing and ensuring reasonable returns, promoting energy transition and safeguarding energy security.