CICC: State Grid's grid investment reached a record high in the first quarter, and the profit model for virtual power plants is expected to improve

The Zhitong Finance App learned that CICC released a research report saying that according to the National Energy Administration, the national power grid project completed an investment of 43.6 billion yuan in January-February 2025, an increase of 33.5% over the previous year. State Grid's grid investment in the first quarter increased 27.7% year-on-year, a record high in the first quarter. The construction of UHV projects is progressing in an orderly manner, and the number of tenders for UHV equipment continues to increase. We continue to be optimistic about the acceleration of new power systems, and the domestic power grid investment boom is improving. Targets, recommendations: 1) UHV and main network: Pinggao Electric (600312.SH), Xuji Electric (000400.SZ), Guodian Nanrui (600406.SH), China Xidian (601179.SH), Siyuan Electric (002028.SZ); 2) Virtual power plants: Guoneng Rixin (301162.SZ), Langxin Group (300682.SZ).

CICC's main views are as follows:

The State Grid's grid investment reached a record high in the first quarter, and continues to be optimistic that the power grid investment boom will improve

State Grid's power grid investment in the first quarter increased 27.7% year-on-year, a record high in the first quarter. The Datong-Huailai-Tianjin UHV project started in March, and the rest of the UHV projects under construction are progressing in an orderly manner; we expect the national power grid investment CAGR to reach about 10% in 2025-2026.

Demand for UHV and UHV is strong, and the results of a batch of joint procurement of distribution networks are being announced one after another

1) In terms of UHV, as of the end of March 2025, the tender amount for UHV equipment was announced at about 10.2 billion yuan, of which the AC project exceeded 7 billion yuan. The number of 1000kV intervals for core equipment was greatly increased compared to last year. The certainty of implementation of the UHV AC project is relatively high. It is expected that 4 UHV AC lines will be approved to start during the year, benefiting leading high voltage switching companies.

2) Non-UHV main network: In the second batch of substation equipment tenders of the State Grid in 2025, the bidding volume for 750kV transformers/combined appliances was +148%/+155%, corresponding to the strong demand for the construction of ultra-high voltage backbone power grids in northwest China. The number of tenders for relay protection equipment was +64%. The importance of power system safety and stability requirements was highlighted.

3) Distribution network: The results of the first batch of distribution network joint procurement were announced one after another. According to the results of sorting complete equipment for 10kV column transformers in North China, the unit price of this batch of equipment dropped by about 10%. The current tender volume is on the rise, and the shares of several leading companies have increased.

The construction of the electricity spot market is accelerating, and the profit model for virtual power plants is expected to improve

Recently, the South Grid released the “Work Plan for New Energy to Participate in the Electricity Spot Market (2025 Edition)” (Draft for Comments) to promote the full participation of centralized and distributed new energy feed-in electricity in the spot market. The National Development and Reform Commission and the National Energy Administration issued the “Guiding Opinions on Accelerating the Development of Virtual Power Plants”, which is the first document at the national level to focus on virtual power plants, and sets development goals for regulating capacity. I am optimistic that the pace of construction of electricity spot markets in various regions will accelerate this year. As one of the best solutions for aggregating distributed resources, virtual power plants are expected to accelerate development, which is beneficial to software and hardware suppliers and aggregators with project experience.

risk factors

New energy installations fell short of expectations, grid investment fell short of expectations, and macroeconomic policies affected the environment.