In March, The Thermal Power Sector Bucked The Trend And Rose By 25%. Why Are High Carbon Energy Sources In The Middle And Lower Carbon Sectors Sought After?

In March this year, A-share thermal power sector was on fire.

Throughout March, with the Shanghai composite index down 1.91%, the A-share thermal power sector (using the Yangtze River Securities Industry Classification, i.e. the "thermal power generation operation" index) bucked the trend and rose by 25.84%.

For comparison, in 2020, when the industry fundamentals are favorable (coal cost is down), the annual growth rate of thermal power sector is only 2.81%, which is significantly lower than the Shanghai Composite Index.

In terms of trading volume, in March 2021, the transaction volume of A-share thermal power sector was 278.68 billion yuan, which was half of that of last year's whole year (557.99 billion yuan).

No one has been interested in the thermal power plate, how suddenly fire?

Carbon neutrality boosts Market

Judging from the secondary market performance, the rise of thermal power sector in March was not isolated.

Changjiang Securities recently pointed out that under the catalysis of carbon neutral and its related concepts, although the overall performance of the market is poor, the power sector has gone out of a significantly better market.

As of the end of last week (March 26), the electricity (Yangtze) index was up 6.23% from the beginning of the month, and the excess return for the same period was about 13.23%. In terms of sectors, thermal power increased by 18.56%, excess return by 25.56%, hydropower by 8.62%, and excess return by 15.63%.

Jiashi resources optimization fund manager Su Wenjie also said in an interview that carbon neutralization is an important catalytic factor in the recent market of thermal power plate.

"In the context of carbon neutral, thermal power as a high-carbon energy will not have any further increment, so the capacity on the supply side is constrained, and the capacity utilization rate of subsequent thermal power is expected to increase steadily. The increase of new energy power generation capacity will bring a lot of generation side costs, which may be transmitted through electricity price. The market expects that the thermal power price may follow the increase. In addition, the carbon emission intensity of large thermal power plants is lower, and it is expected to benefit from carbon neutralization, so the thermal power sector has relatively good performance in the near future. " So Su Wenjie introduces the logic.

It is worth mentioning that under the catalysis of the concept of carbon neutralization, A-share thermal power sector also came out of several "demon stocks" in March.

Among the 35 stocks included in the Yangtze thermal power index, Changyuan electric power (000966. SZ), Huayin power (600744. SH) and Shenzhen Energy (000027. SZ) had the biggest gains in March.

According to our report on March 19, the three companies currently hold shares in local carbon emission exchanges. Changyuan power holds 9.0909% equity of Hubei carbon emission trading center, while Shenzhen Energy and Huayin power hold 12.5805% and 7.50% shares of Shenzhen emission rights exchange respectively.

According to the equity structure of the national carbon market trading agency (CCRI) and registration Agency (CCDC), Changyuan power will hold 0.864% of the shares of CCRI and 2.182% of the CCDC in the future; Shenzhen energy will hold 1.195% of the shares of CCRI and CCDC respectively; and Huayin power will hold 0.713% of the shares of CCRI and CCDC in the future.

Data show that Changyuan power, Huayin power and Shenzhen energy increased by 133.43%, 109.64% and 94.79% in March. During the whole March, the trading of the three stocks was very active, with turnover rates of 265.9%, 520.7% and 115.46% respectively. In March, the number of times on the dragon and tiger list was as high as 16, 11 and 13.

Thermal power is still electric ballast

In the secondary market, the concept of carbon neutral led to the thermal power plate market. So, in the actual operation, what is the impact of carbon neutral policies on the thermal power industry and companies?

In the current energy structure of China, thermal power is still the largest. In terms of power supply, thermal power will dominate the power generation structure in 2020, and nearly 70% of the power generation will be provided by thermal power.

In 2020, the national power generation will be 7779.06 billion kwh, of which the thermal power generation will be 5330.25 billion kwh, accounting for 68.52%.

In terms of installed capacity, by the end of 2020, China's thermal power installed capacity reached 1245.17 million kilowatts, a year-on-year increase of 4.7%, accounting for 56.58% of the national installed power generation capacity.

In an interview, Su Wenjie said that carbon neutrality has a great impact on the thermal power industry in both the long-term and medium-term dimensions.

"In the long run, the thermal power industry will be affected, and all coal-fired power production capacity will be withdrawn in 2060. In the medium term, the rate of return of the thermal power industry is suppressed, because the development of thermal power is of little significance and there is no need to encourage the development of the thermal power industry. Therefore, the rate of return of the thermal power industry is expected to be continuously suppressed. " Su said.

However, in the short term, thermal power is still "ballast" in the power system.

"Referring to the national carbon neutral target of 2060, there is no mention of withdrawing from thermal power in the next 20 years." Haitong Securities believes that new energy and thermal power will still be interdependent in the next 20 years.

In December 2020, some cities in Hunan, Jiangxi, Zhejiang, Inner Mongolia and other provinces will have "power shortage". For example, Hunan Province once issued a document in December, saying that the province's maximum load has reached 30.93 million kilowatt hours, exceeding the historical record in winter. The daily maximum power consumption is 606 million kwh, an increase of 14.1% over the same period of last year. There is a large gap in power supply.

Coincidentally, in February of this year, Texas in the United States also experienced a "power shortage" due to extreme weather. The energy structure of Texas is dominated by natural gas power generation and wind power generation. In the cold winter, the power supply of wind power is rapidly reduced.

In this regard, Dongfang Securities pointed out that during the "14th five year plan" period, coal power in the power system "ballast stone" status will not change. "The extreme weather caused power failure in Dezhou and the phenomenon of power cut-off in some provinces of China in the winter of 2020 reflects the increasing vulnerability of the power system in the process of new energy transformation." Orient Securities said.

(thermal power) not only should not be turned off, but also more units should be added, otherwise the winter power shortage will come again. " Haitong Securities also holds a similar view that thermal power may still play the role of basic power supply and auxiliary peak shaving power supply during the "14th five year plan" and even the "15th five year plan".

In the interview, a number of A-share large-scale thermal power enterprises all told reporters that large-scale thermal power units will still be launched in the future.

Guodian power (600795. SH) related people told reporters that in the future, the company will have new fire generating units, "basically all large units with high capacity of one million."

Huadian International (600027. SH) related people told reporters that although the current thermal power installed speed is slowing down, "there will be a certain amount of thermal power installed in the future.".

The source said that Hunan Province, which had a shortage of electricity at the end of last year, will soon put on a batch of large thermal power units as the supporting power supply. "In extreme cases, the adjustable power supply redundancy is insufficient, so a part of thermal power is needed as the supporting power supply. This kind of support power supply must be 600 MW and above. " The person said.

Carbon neutralization is good for big fire power?

Although the industry status of thermal power "ballast" is hard to shake in the short term, under the current carbon neutral policy, carbon emission control for thermal power enterprises has been fully launched.

In January this year, 2225 power enterprises, as key emission units, have been included in the carbon emission quota management. The carbon emission quota of enterprises from 2019 to 2020 is determined according to the actual heat supply / power supply quantity, mainly distributed free of charge, and a 20% performance gap upper limit is set.

In terms of carbon emission quota, the Interim Regulations on the management of carbon emission right trading (Revised Draft) issued by the Ministry of ecological environment on March 30 further clarified that free distribution was the main mode in the initial stage, and the paid distribution was introduced timely according to the national requirements, and the proportion of paid distribution was gradually expanded.

What is the impact of carbon emission quota and carbon trading policies on thermal power enterprises? In this regard, many organizations expect that carbon peaking, carbon neutral will not have a fatal impact on thermal power enterprises in the short term.

Haitong Securities pointed out that carbon emission reduction is not to eliminate thermal power, on the contrary, it may benefit thermal power.

However, U.N. Secretary General Guterres said the phasing out of coal in the power industry is the most important step to control the temperature rise within 1.5 degrees Celsius. This means that global coal use in power generation must be reduced by 80% by 2030 compared with 2010. He called for the cancellation of all planned coal projects around the world and an end to the deadly dependence on coal.

On the cost side, the short-term carbon emission pressure of thermal power enterprises is small. According to the calculation, the current carbon cost per kilowatt hour of thermal power enterprises is about 0.02 yuan, which is basically consistent with that of the United States.

Although the quota supply will be tightened in the future, enterprises can achieve the quota target by means of technological transformation and emission reduction, increase investment in new energy to obtain voluntary emission reduction (CCER), and transfer quota through intra group agreement, which has little impact on cost in the long run. At the same time, the transformation of new energy will also promote the improvement of roe of thermal power group.

Huatai Securities also pointed out that after power generation enterprises are included in the carbon market, they will measure the benefit relationship between emission reduction cost and purchase quota based on their own technical level. When their own emission reduction cost is less than the purchase of quota funds, power generation enterprises will choose to actively reduce emissions, and when their own emission reduction costs are greater than the purchase quota, power generation enterprises will give up their own emission reduction and purchase quotas instead.

"The carbon trading mechanism benefits large capacity and low coal consumption units in the short term, and has a limited impact on the existing units." Huatai Securities said. According to its calculation based on the relevant data of Guangdong Province in 2019, carbon trading is expected to drive the total profit of new coal-fired power units to increase by about 0.6% - 1.6%, and the impact on the total profit of existing coal-fired power units will be about - 0.2% ~ + 1.0%.

In this regard, Su Wenjie told reporters that in the carbon neutral trend, the future head "big fire power" will be more beneficial.

According to the interview of 21st century economic report, some leading enterprises in thermal power industry have already taken actions to adapt to low-carbon development. The main measures include low-carbon transformation of existing units, commissioning of large-capacity thermal power units and development of new energy.

"In recent years, we have been in accordance with the national policy of" pushing the big ones and suppressing the small ones ". Some small units will be eliminated and the larger ones will be upgraded. Some of them will be retrofitted at the technical level. At present, all units have completed the low emission transformation Guodian electric power related personage introduced to the reporter.

The person said that during the "14th five year plan", the company "will take clean and renewable energy as the main development direction".

Relevant personage of Huadian International also disclosed to reporters that in the future, enterprises may shut down some small coal-fired power units, "and then according to the same proportion of large units, such as three small units and one large one. However, in the future, it may be mainly new energy. ".

According to the annual report of Huadian International in 2020, 95 coal-fired units of the company have all met the ultra-low emission requirements. More than 90% of the thermal power generating units of the company are 300 MW and above large capacity, high efficiency and environment-friendly units.

Su Wenjie told reporters: "with the help of low-carbon policy, the" big fire power "will be suppressed and eliminated, and its local advantages will increase. With the further enhancement of low-carbon trend in the future, the return rate of "big fire power" may increase. At the same time, we also expect the thermal power companies to make great efforts to transform to new energy. "