According to Zhitong Finance APP, Sinolink Securities released a research report stating that high temperature weather has boosted electricity demand, combined with below-average water inflow during the flood season compared to the same period last year, leading to continued sequential recovery in Q3 thermal power generation growth. "Document 136" promotes comprehensive market entry for renewable energy, bringing both opportunities and challenges as the proportion of market-based electricity trading increases. Driven by the "installation rush," the pace of capacity commissioning has accelerated, but poor wind resources, rising curtailment rates, and declining market electricity prices have put pressure on renewable energy revenue and performance. For the nuclear power sector, performance faces temporary pressure due to the overall decline in market transaction electricity prices in 2025 and policy adjustments regarding VAT refund income tax collection, while new unit commissioning is expected to bring incremental growth.
Sinolink Securities' main viewpoints are as follows:
**Industry Segment Analysis: Divergent Performance Across Sectors in Q2 2025**
(1) **Thermal Power**: With marginally drier water conditions in Q2 2025 and a low base effect, thermal power generation growth turned positive year-over-year, with cost reductions exceeding electricity price declines, leading to continued performance improvement. Due to a warm winter and industrial structure adjustments, electricity demand growth slowed in H1 2025, but marginally drier conditions and low base effects in Q2 2025 led to positive year-over-year growth in thermal power generation. On the revenue side, annual long-term contract electricity prices declined in 2025, combined with slower thermal power generation growth in H1 2025, resulting in year-over-year revenue decline. In terms of profitability, fuel costs remain the key factor affecting thermal power industry performance during the year. Market coal prices entered a downward trend after the Spring Festival, touching a low of 610 yuan/ton in June. Considering power plant inventory availability days, the market coal price decline after the Spring Festival was mainly reflected in Q2 2025 performance. With fuel cost reductions exceeding electricity price declines, the thermal power industry achieved a 1.9% year-over-year increase in net profit attributable to shareholders in Q2 2025.
(2) **Renewable Energy**: The "installation rush" accelerated capacity commissioning pace, but poor wind resources, rising curtailment rates, and declining market electricity prices pressured revenue and performance. "Document 136" set the cutoff date for existing and new projects at May 31, 2025, resulting in Q2 2025 wind power new capacity additions significantly exceeding historical levels for the same period. New capacity additions have not fully converted to generation growth, with generation increases lower than capacity increases. Poor wind resources and rising curtailment rates led to average utilization hours for wind and solar decreasing by 47 and 66 hours year-over-year, respectively. New unit commissioning brought increased depreciation expenses upon asset transfer, while declining utilization hours led to higher per-kWh depreciation allocation, combined with falling comprehensive average on-grid electricity prices, causing both revenue and net profit growth rates in the renewable energy industry to turn negative in Q2 2025.
(3) **Hydroelectric Power**: H1 2025 water inflow remained stable to abundant overall, with cost optimization contributing to profit increases. Water conditions diverged between Q1 2025 and Q2 2025. National hydroelectric generation recorded negative year-over-year growth in H1 2025, but water conditions varied by region. While Q2 2025 saw notably drier conditions in the middle and lower Yangtze River regions compared to the same period last year, the upstream southwestern regions maintained stable to abundant water inflow. Combined with large hydroelectric companies' reservoir regulation capabilities that can smooth out water flow fluctuations, some companies recorded growth in cumulative H1 2025 generation. On the cost side, hydroelectric companies capitalized on long-term interest rate declines to continuously reduce average financing costs, with the hydroelectric industry achieving a 10.6% year-over-year increase in net profit attributable to shareholders in H1 2025.
**Key Company Analysis: Universal Price Declines, Cost Optimization Driving Profit Growth**
(1) **Thermal Power**: Annual long-term contract electricity prices varied by province in 2025, with Q2 2025 coal price declines improving costs and achieving profitability across the board. Taking Datang International Power as an example, the company achieved revenue of 26.99 billion yuan in Q2 2025, down 2.13% year-over-year, and net profit attributable to shareholders of 2.34 billion yuan, up 31.8% year-over-year.
(2) **Green Power**: The "installation rush" accelerated capacity growth pace, while declining electricity prices and rising curtailment rates pressured profitability. For instance, China Three Gorges Renewables added 2.181 million kW of new grid-connected capacity in H1 2025, with total controlled capacity up 20.7% year-over-year by period end. During the same period, cumulative total generation reached 39.31 billion kWh, up 8.9% year-over-year. Generation growth was lower than capacity growth mainly due to declining utilization hours, which decreased primarily due to relatively high consumption pressure in regions such as Qinghai, Inner Mongolia, and Gansu. GCL-Poly Energy commissioned 459MW of new capacity in H1 2025, a significant increase of approximately 70% compared to new capacity commissioned in the same period last year. Driven by capacity growth, H1 2025 photovoltaic power generation business revenue increased 4.7% year-over-year; however, the rising proportion of grid parity projects led to structural decline in average on-grid electricity prices, with gross margin down 5.2 percentage points year-over-year.
(3) **Nuclear Power**: New reactor commissioning contributed incremental growth, but declining electricity prices affected performance. China General Nuclear Power's nuclear power grid-connected generation increased 6.9% year-over-year in H1 2025, while revenue decreased 0.5% year-over-year. China National Nuclear Power's controlled nuclear power grid-connected generation increased 12.1% year-over-year in H1 2025, while revenue increased only 9.4% year-over-year, mainly due to declining overall electricity market transaction prices.
(4) **Hydroelectric Power**: H1 2025 water conditions varied by region. Taking China Yangtze Power as an example, the company's total generation increased 9.4% year-over-year in Q1 2025, with all six cascade power stations recording year-over-year growth. However, Q2 2025 saw drier conditions in the middle and lower Yangtze River regions compared to the same period last year, leading to year-over-year declines in generation at Three Gorges and Gezhouba. Cumulative total generation in H1 2025 increased 5.0% year-over-year, achieving revenue growth of 5.3% year-over-year and net profit attributable to shareholders growth of 14.9% year-over-year, with profit growth exceeding revenue growth due to cost optimization.
**Investment Recommendations**
**Thermal Power Sector**: Recommend focusing on leading enterprises with favorable competitive landscapes and tight power supply-demand conditions in their asset locations, such as Huaneng Power International (600011.SH) and Huadian Power International (600027.SH).
**Wind and Solar Generation Sectors**: In electricity market trading, wind power assets with output curves featuring anti-peak characteristics are likely to obtain higher average settlement electricity prices. Recommend focusing on renewable energy leader CHINA LONGYUAN (001289.SZ, 00916), which primarily consists of wind power assets.
**Nuclear Power Sector**: Against the backdrop of increasing market-based electricity pricing, recommend focusing on nuclear power leader China National Nuclear Power (601985.SH).
**Risk Warnings**: New capacity additions falling short of expectations; low downstream demand prosperity and reduced electricity demand leading to utilization hours below expectations; electricity market liberalization progress falling short of expectations, among others.