Profit growth cannot hide the decline in revenue; state-owned power enterprises' new energy investments are shifting from "focusing on scale" to "focusing on efficiency."

Ask AI · How will the full market entry of new energy impact traditional power generation profit models?

Under the four major power generation groups, the core listed companies Huaneng International (600011.SH), Huadian International (600027.SH), Datang Power (601991.SH), and China Power (02380.HK) have all disclosed their 2025 annual reports.

Benefiting from the cost dividends released by falling coal prices, most companies saw an increase in net profit attributable to the parent company. However, with the trend of full market entry of new energy and expanding coverage of the spot market, the on-grid electricity price and electricity volume both declined simultaneously, leading to all four companies experiencing year-on-year revenue contraction last year.

State-owned power companies are the main force in new energy installation, accounting for nearly 60% of the added capacity in wind and solar during the 14th Five-Year Plan. As the supply and demand pattern in the coal market adjusts and the reform of electricity marketization deepens, coupled with the goal of 36 GW of wind and solar capacity over the next decade, the investment logic and development strategies of state-owned power generation enterprises in new energy projects are transforming. This is crucial for the development of the domestic electricity market and is also central to solving the dual challenges of green, low-carbon development and steady growth in revenue.

Profit Growth Without Revenue Growth

According to comprehensive annual report data, by 2025, Huaneng International, Huadian International, China Power, and Datang Power all exhibit the characteristic of “profit increase without revenue increase.”

The decline in coal prices was the core support for these power generation companies’ net profit growth last year. In 2025, the annual average price of 5,500 kcal thermal coal at northern ports is about 700 yuan/ton, a significant drop from 840 yuan/ton in 2024, driving fuel costs for the four companies down by 11% to 16% year-on-year.

Under this favorable condition, Huaneng International, Huadian International, and Datang Power all saw their net profits attributable to the parent increase across the board. Among them, Huaneng International led with a profit scale of over 14.4 billion yuan, up 42% year-on-year; Datang Power achieved nearly 7.4 billion yuan in net profit, up about 64%, the highest growth rate.

However, with on-grid electricity volume and electricity prices declining in tandem, the revenue of all four companies contracted year-on-year. Notably, Huadian International’s revenue was approximately 126 billion yuan, an 11% decrease, the largest among the four, mainly due to a significant reduction in on-grid electricity volume. China Power’s revenue was about 49 billion yuan, the smallest scale, and it was the only one with a decline in net profit attributable to the parent company, mainly because its renewable energy installed capacity ratio is high, and the market-based trading electricity volume accounts for a large proportion, making it more affected by marketization reforms.

Regarding performance pressure, China Power stated that the full marketization of renewable energy on-grid electricity prices has lowered the average electricity price, leading to a shrinkage in profits from its renewable energy sector; Huadian International also pointed out that reduced generation and declining electricity prices are the main reasons for its revenue decline.

Pain of Electricity Marketization

The large-scale growth of domestic new energy installations and the continuous deepening of electricity market reforms are fully impacting the traditional profit models of power generation enterprises.

By 2025, several major power market policies will be implemented. The “Notice on Deepening the Market-Oriented Reform of New Energy On-Grid Electricity Prices to Promote High-Quality Development of New Energy” (referred to as “Document 136”) promotes wind and solar power to fully enter the electricity market trading; the “Notice on Accelerating the Construction of the Electricity Spot Market” and the “Guidelines for the Construction of Continuous Operation Areas of Electricity Spot Markets” have been issued, clarifying the timing for the development of spot markets. Currently, except for Tibet and the Beijing-Tianjin-Tangshan region, all provinces and regions in China have basically achieved full coverage of electricity spot markets.

The entry of low-cost new energy into the market, combined with increased volatility in green electricity trading prices, directly lowers overall market electricity prices. Huaneng International and Huadian International’s on-grid electricity prices are expected to decrease by 2.8% to 3.5% in 2025. Meanwhile, the rapid growth of wind and solar capacity has led to overall loose supply and demand, increasing pressure on renewable energy absorption. According to data from the National New Energy Absorption Monitoring and Early Warning Center, the annual utilization rates of wind and solar power in China in 2025 are 94.3% and 94.8%, respectively, the first time falling below 95% during the 14th Five-Year Plan.

“Last year, the utilization hours of wind and solar power in many regions significantly declined. In addition to Xinjiang and Gansu, where the decline exceeded 20% compared to the early stage of the 14th Five-Year Plan, there is also a notable risk of wind and solar curtailment in load centers like northern Jiangsu,” said Zhao Tianyi, senior researcher on China’s energy transition at Bloomberg New Energy Finance (BNEF), at the recent BNEF Beijing Summit. He pointed out that state-owned power generation companies have always been the main force in expanding renewable energy domestically, but they are now facing dual pressures from declining project returns and operational challenges caused by falling electricity volume and prices.

According to BNEF statistics, over the past five years, the average debt ratio of nine listed central power enterprises, including Huaneng International and Datang Power, has increased by 2 percentage points; by 2025, the debt ratios of companies like Datang Power and China Three Gorges Corporation (600905.SH) will surpass 70%, exceeding the red line of key regulatory oversight by the State-owned Assets Supervision and Administration Commission (SASAC). “This not only increases the burden of debt reduction for the groups but also restricts the development space of listed companies,” Zhao Tianyi said.

A Financial Times reporter noted that several listed state-owned power companies have issued asset impairment notices simultaneously with their annual reports. Huaneng International’s subsidiary Huaneng Shandong Sishui New Energy Co., Ltd. recorded an impairment of 235 million yuan due to operational losses; Datang Power’s Heilongjiang branch and five other early-stage projects, including the Datang Mulan wind farm, faced impairment of 2.9722 million yuan due to policy adjustments, site selection issues, and unsatisfactory yields.

From Scale Expansion to Fine-Tuned Operations

By 2026, power generation companies will face triple risks from fuel, new energy electricity volume, and prices. The model of relying on coal price dividends to mask operational contradictions will no longer be sustainable.

On the electricity price side, the “Basic Rules for the Medium- and Long-term Power Market” officially came into effect in March, with some regions removing fixed time-of-use prices, increasing market-based price volatility; the “Implementation Opinions on Improving the National Unified Power Market System” issued in February clearly state that by 2030, all types of power sources and non-guaranteed users will fully participate in the market, intensifying competition and increasing pressure on power generators to maintain volume and stabilize prices. Additionally, imports of coal will tighten, and domestic capacity controls will become stricter, likely leading to a tighter coal market this year, gradually eroding fuel cost advantages.

On the electricity volume side, industry forecasts suggest that supply and demand will be relatively loose this year. Coupled with the goal of 36 GW of wind and solar capacity by 2035, some regions may experience structural oversupply, and insufficient grid and peak regulation capacity could increase wind and solar curtailment, compressing project returns.

“Under the trend of marketization, the previous stable revenue model based on subsidies and fixed prices for renewable energy has been broken,” Zhao Tianyi pointed out. The investment logic for renewable energy is shifting from scale expansion to value investment, requiring power companies to enhance professional operational capabilities and accelerate asset value restructuring.

To hedge against declining electricity prices, Zhao Tianyi suggests that power companies should strictly control project costs, focus on the quality and reliability of equipment procurement, and consider building electricity price forecasting models to incorporate into investment decision-making. Additionally, companies like Datang Power and Huadian International plan to leverage ancillary services, capacity payments, and other policies to increase revenue. In 2025, Huaneng International earned 1.36 billion yuan net from ancillary services through peak regulation and frequency modulation.

In project development, many state-owned power companies are shifting toward integrated multi-energy bases combining wind, solar, hydro, thermal, and energy storage, or water-wind-solar hybrid projects. In December last year, China Power Investment Corporation (600795.SH) announced that its subsidiary plans to jointly invest in and operate the Dadu River Danba hydropower station project with CATL (300750.SZ) and others.

“Local consumption is also a key development focus,” Zhao Tianyi added. State-owned developers can reduce wholesale market risks by directly supplying industrial users. Datang Power’s outlook for 2026 emphasizes regional adaptation, deepening green power direct connection, digital coordination, and zero-carbon parks to build differentiated competitive advantages.

As the scale and diversity of new energy projects continue to grow, the connection and monitoring data of power system equipment are exploding, and the complexity of end-side intelligent IoT and operation & maintenance pressures are rising. The digitalization of power terminals has become critical for improving operational efficiency.

A First Financial reporter learned that China Resources Power (00836.HK) recently launched an IoT operating system called “RunDian Hong” for the power generation side. This system has been specially developed and optimized at the middleware and application layer to address multiple issues in the power IoT field.