The rapid growth of domestic demand and the supply of multi-factor constraints have contributed to the lack of electricity in the off-season. On the supply side, high coal prices led to serious losses for some small and medium-sized generators and insufficient incentives to generate electricity, which greatly reduced the output. In some provinces, too few new installations and rapid demand growth have also led to the situation where power output cannot meet the highest load.
We believe that the electricity price adjustment in 2011 is different from that in 2008 and is expected to move toward conventional adjustments.
The reasons are: (1) The adjustment of electricity prices in some provinces in April dates back to January 1, 2010, indicating that the government has paid enough attention to losses in power companies, and the cost of rising coal prices should not be borne by power generation companies; (2) The electricity price was adjusted again in June, both ahead of market expectations. We believe that the two consecutive feed-in tariff adjustments indicate that the government's tolerance for rational electricity price transmission is increasing. The NDRC's attitude towards electricity price reform is changing in a positive direction. The adjustment of electricity price is expected to move from emergency adjustment to conventional adjustment.
Electricity prices still need to be adjusted again. According to our rough estimate, the power industry should return to a normal level of profitability, and most provinces still need to raise the power price by 1-4 cents. We believe that the possibility of increasing the on-grid tariff again during the year is still a possibility. If we can increase 2.5 cents on average, most of the provinces can basically return to normal profit levels.
Hydro-environmental protection risks are limited, and costs may be adjusted upwards by electricity prices. We believe that although hydropower companies, especially Yangtze Power, face the risk of adding the cost of the old power plant policy, this part of the cost should be digested by an increase in electricity prices from the perspective of necessity and feasibility. Therefore, the impact of environmental policy risks on the hydropower industry will be very limited.
After the thermal power sector experienced some adjustments in the previous period, some high-quality companies PB returned to the safety interval of 1.5-1.7 times. We believe that in the face of positive forecast of electricity price reform, the thermal power sector already has relatively obvious value and has strong defensiveness in the weak market. Therefore, the rating of the thermal power industry is raised as “recommendedâ€.
We believe that the electricity price adjustment in 2011 is different from that in 2008 and is expected to move toward conventional adjustments.
The reasons are: (1) The adjustment of electricity prices in some provinces in April dates back to January 1, 2010, indicating that the government has paid enough attention to losses in power companies, and the cost of rising coal prices should not be borne by power generation companies; (2) The electricity price was adjusted again in June, both ahead of market expectations. We believe that the two consecutive feed-in tariff adjustments indicate that the government's tolerance for rational electricity price transmission is increasing. The NDRC's attitude towards electricity price reform is changing in a positive direction. The adjustment of electricity price is expected to move from emergency adjustment to conventional adjustment.
Electricity prices still need to be adjusted again. According to our rough estimate, the power industry should return to a normal level of profitability, and most provinces still need to raise the power price by 1-4 cents. We believe that the possibility of increasing the on-grid tariff again during the year is still a possibility. If we can increase 2.5 cents on average, most of the provinces can basically return to normal profit levels.
Hydro-environmental protection risks are limited, and costs may be adjusted upwards by electricity prices. We believe that although hydropower companies, especially Yangtze Power, face the risk of adding the cost of the old power plant policy, this part of the cost should be digested by an increase in electricity prices from the perspective of necessity and feasibility. Therefore, the impact of environmental policy risks on the hydropower industry will be very limited.
After the thermal power sector experienced some adjustments in the previous period, some high-quality companies PB returned to the safety interval of 1.5-1.7 times. We believe that in the face of positive forecast of electricity price reform, the thermal power sector already has relatively obvious value and has strong defensiveness in the weak market. Therefore, the rating of the thermal power industry is raised as “recommendedâ€.
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