Huaneng Lancang River Hydropower Inc. and the Impact of High Temperatures on the Power Sector
In recent weeks, a heatwave has swept across most regions of China, presenting challenges to daily life while simultaneously igniting the “summer engines” of specific industries. Among these, the power sector is poised to provide significant upward momentum in the market’s fluctuating recovery. Analysts suggest that this heatwave could transform into robust consumer demand, positively impacting several industries, including electricity, air conditioning, and tourism.
Electricity Demand on the Rise
The persistent high temperatures have led to a surge in electricity demand as the country braces for peak summer loads. Industry experts note that the China Meteorological Administration forecasts prolonged high temperatures across many regions, with some areas potentially reaching or exceeding historical peak values. This scenario is expected to drive a continuous increase in national electricity demand. The China Electricity Council estimates that, under normal climatic conditions, the national peak electricity demand for the year will be around 13.7 billion kilowatts, an increase of approximately 8 million kilowatts from the previous year. In the event of prolonged extreme weather, the peak demand could rise by about 10 billion kilowatts compared to last year. During the peak summer period, the overall electricity supply and demand are expected to remain in a tight balance, with some regions experiencing tighter supply during peak demand periods.
Investment Opportunities in the Power Sector
Analysts from Yingxin Securities, including analyst Yuan Weizhi, highlight the investment opportunities in the power sector. The sustained high temperatures are expected to significantly boost electricity demand, particularly from continuous air conditioning loads that are difficult to shift in time. This is likely to lead to a substantial increase in thermal power generation, with market-driven electricity prices also expected to rise during periods of tight demand. Analysts recommend focusing on companies with flexible quarterly earnings such as Huaneng International, Shenergy Group, and Guangdong Power, as well as hydroelectric leaders like China Three Gorges, State Power Investment, Sichuan Power Investment, and Huaneng Hydropower. Additionally, nuclear power, primarily located in coastal economic development areas, is expected to play a more significant role due to its base load capacity, potentially benefiting from tighter local supply-demand conditions and higher market-driven electricity prices.
Company Highlights
Huaneng International (600011): Despite a 7.7% year-on-year decline in first-quarter revenue due to decreased average grid settlement electricity prices, the company’s profitability remains robust. The decline in coal prices has significantly reduced unit fuel costs, leading to a 10.97% year-on-year decrease in operating costs. The thermal and gas power profit margins increased by 40.96% and 40.58%, respectively, contributing over 60% to the total profit. With a generally relaxed coal supply and demand outlook, coal prices are expected to remain low, supporting the profitability of Huaneng International’s thermal power business.
Shenergy Group (600642): The company reported a 12.82% year-on-year decrease in attributable net profit for the first quarter of 2025, with non-controlling interest net profit down by 2.27%. The decline is attributed to maintenance shutdowns and changes in fair value adjustments. However, the company’s long-term earnings stability and predictability remain strong, with its thermal power units characterized by large scale and low coal consumption, primarily located in the Shanghai region, benefiting from electricity price resilience and coal price elasticity.
Conclusion
The ongoing heatwave has underscored the critical role of the power sector in China’s economy, highlighting the potential for increased electricity demand and investment opportunities. Companies like Huaneng Lancang River Hydropower Inc. are well-positioned to capitalize on these trends, offering promising prospects for investors in the utilities sector.