Utilities & Environmental Protection Sector Report: January 2026 (Issue 2)

Rating: Outperform (Maintained)
Date: January 2026
Analysts: Huang Xiujie, Liu Hanxuan, Cui Jiacheng
Source: Guosen Securities Economic Research Institute

Executive Summary

The Utilities and Environmental Protection sector demonstrated resilience in early January 2026, with the Environmental Protection Index outperforming the broader market. The CSI 300 Index rose by 2.79%, while the Utilities Index increased by 2.54% and the Environmental Protection Index surged by 3.88%. Within the utilities sub-sectors, Natural Gas (+4.80%) and New Energy Power Generation (+3.74%) led the gains, reflecting investor appetite for energy security themes and policy-supported green transition assets. Conversely, Hydropower (+0.70%) lagged slightly, though it remains a core defensive holding.

A critical development in the power sector is the slight decline in renewable energy utilization rates. Data from the National Energy Administration indicates that for January–November 2025, the utilization rate for photovoltaic (PV) power stood at 94.8% (down 2.2 percentage points year-over-year), and wind power utilization was 94.3% (down 2.0 percentage points year-over-year). This trend underscores the growing importance of grid flexibility, energy storage integration, and the need for robust transmission infrastructure to accommodate the rapid expansion of renewable capacity.

This report introduces a pivotal thematic shift in the Environmental Protection sector: the transition from "Cost Center" to "Value Creation" via the "Environmental Protection + Resource Commodities" investment logic. Historically viewed as low-return, asset-heavy businesses dependent on government subsidies, leading environmental companies are increasingly deriving significant revenue from the extraction and sale of high-value resources such as industrial metals (copper, gold, silver, nickel), biofuels, and recycled materials. With geopolitical tensions driving strategic stockpiling and central banks diversifying away from the US dollar, commodity prices—particularly precious and industrial metals—have seen substantial appreciation. We identify this structural re-rating opportunity as a key alpha generator for institutional portfolios.

Our investment strategy remains diversified across the value chain:
1. Thermal Power: Benefiting from synchronized declines in coal prices and electricity tariffs, maintaining healthy margins. We favor large-scale national operators like Huadian International and regionally strong players like Shanghai Electric Power.
2. New Energy: Policy support continues to stabilize profitability. We recommend national leaders Longyuan Power and Three Gorges Energy, alongside regional offshore wind specialists Guangxi Energy, Funeng Shares, and Zhongmin Energy. Jinkai New Energy is highlighted for its innovative "Computing-Power Synergy" model.
3. Nuclear Power: Stable earnings driven by volume growth offsetting tariff pressures. Top picks include China National Nuclear Power (CNNP) and CGN Power. We also highlight SPIC Industry-Finance Holdings as a key restructuring play following the integration of SPIC’s nuclear assets.
4. Hydropower: In a global easing cycle, high-dividend hydropower stocks offer compelling defensive attributes. Yangtze Power remains our top pick for its balance of stability and growth.
5. Gas & Equipment: JOVO Energy is recommended for its LNG trading capabilities and exposure to commercial aerospace special gases. Xi Zi Clean Energy is noted for its expansion into nuclear and clean energy equipment manufacturing.
6. Environmental Protection: We advocate for "Quasi-Utility" investments in mature sectors like water and waste-to-energy (Everbright Environment, SIIC Holdings, Zhongshan Public Utilities). Additionally, we see strong potential in scientific instrument domestic substitution (FPI, Wanyi Technology), waste oil resourceization benefiting from EU SAF mandates (Shanggao Huaneng), and biomass power cost improvements (Changqing Group).

Key Takeaways

1. Market Performance & Sector Rotation

• Relative Strength: The Environmental Protection sector outperformed the CSI 300 by 1.10% this week, ranking 16th among 31 Shenwan primary industries. Utilities ranked 23rd.
• Sub-Sector Dynamics:
  • Natural Gas (+4.80%): Driven by winter demand expectations and strategic reserve narratives.
  • New Energy Power (+3.74%): Supported by continued policy tailwinds and grid integration improvements.
  • Thermal Power (+2.40%): Resilient performance amid stable coal costs.
  • Hydropower (+0.70%): Moderate gains, reflecting its role as a stable dividend yielder rather than a high-growth asset in the current short-term context.

2. Critical Industry Data: Renewable Utilization Trends

The slight dip in renewable utilization rates signals a transitional phase in China’s energy mix. While absolute generation volumes are rising, grid absorption capacity is being tested.

• Implication: Investors should monitor companies with integrated storage solutions or those located in regions with stronger grid interconnectivity. The decline, while modest, suggests that future capacity additions must be paired with flexibility resources to maintain curtailment levels within acceptable bounds.

3. Thematic Deep Dive: "Environmental Protection + Resource Commodities"

We are upgrading our view on the Environmental Protection sector by emphasizing its resource extraction capabilities. This theme transforms the narrative from pure waste management (a cost center) to resource supply (a value creator).

A. The Macro Driver: Strategic Stockpiling & De-Dollarization

• Geopolitical Security: Nations are accelerating the stockpiling of strategic materials, driving up prices for industrial metals.
• Monetary Shift: Central bank "de-dollarization" trends have重构 (restructured) the pricing logic for precious metals, leading to significant rallies in gold and silver.
• Elasticity: Among resource outputs from environmental firms (electricity, steam, waste oil, metals), metals exhibit the highest price elasticity, offering greater earnings leverage during commodity super-cycles.

B. Business Model Evolution

Traditional environmental models relied on government tipping fees and subsidies. The new model involves:
1. Hazardous Waste Resourceization: Extracting copper, gold, silver, nickel, and palladium from industrial sludge and catalysts.
2. Kitchen Waste/Biofuel: Converting waste grease into Sustainable Aviation Fuel (SAF) feedstock and biodiesel.
3. Waste-to-Energy (WtE): Generating electricity and recovering ferrous/non-ferrous metals from bottom ash.
4. Recycling Networks: Producing high-purity recycled plastics and battery-grade metals (Li, Co, Ni).

C. Quantitative Evidence: Metal Production & Price Sensitivity

The following table highlights the exposure of major listed environmental companies to metal commodities. Note the significant year-over-year price increases for key metals, which directly boost the top-line and margin profile of these firms.

Table 1: Key Metal Price Performance (Past Year)

Source: Shanghai Futures Exchange, Wind, Guosen Securities.

Table 2: Metal Production Exposure of Leading Environmental Companies (2024 Data)

Note: Prices reflect active futures contract closing prices on Jan 9, 2026. Production data is based on 2024 annual reports.

D. Emerging Capacity & Pipeline

Beyond current production, several companies are expanding their resource footprint:
* Beijie Te: Acquiring Dahao Mining and Wenyi Nonferrous to transition into mineral development.
* Sichuan Energy Investment: Controls the Lijiagou Lithium Mine (proven reserves: 38.81 million tons, avg grade 1.30%). Project reached design capacity (1.05 million tons ore/year) by August 2025.
* Scinics: Investing in a Rhenium Ammonium production line (2 tons/year) at Jilin Zijin Copper’s facility.
* Weiming Environment: Its Jiaman Company’s 20,000-ton oxygen-enriched side-blown furnace entered trial production, producing 2,306 tons of nickel-containing metal in H1 2025. Commercial sales license obtained in July 2025.

4. Policy & Regulatory Updates

A. Green Electricity Certificate (GEC) Management

The National Energy Administration issued the "Implementation Rules for the Management of Renewable Energy Green Electricity Certificates (Trial)."
* Issuance Mechanism: 1 GEC per 1,000 kWh of renewable energy generated.
* Tradable GECs: Issued for wind, solar, biomass, geothermal, ocean energy, and conventional hydropower units commissioned on or after Jan 1, 2023.
* Non-Tradable GECs: Issued for self-consumed power, off-grid renewable power, and conventional hydropower units commissioned before Jan 1, 2023.
* Impact: This clarifies the monetization path for newer hydro assets and reinforces the value proposition of renewable generators in the carbon market. It creates a dual-revenue stream (electricity + environmental attribute) for eligible projects.

B. Export Tax Rebate Adjustments

The Ministry of Finance announced changes effective April 1, 2026:
* PV Products: VAT export rebates will be cancelled.
* Battery Products: VAT export rebate reduced from 9% to 6% (Apr–Dec 2026), then cancelled from Jan 1, 2027.
* Investment Implication: This policy aims to reduce low-price competition in global markets and encourage higher-value exports. While it may pressure margins for pure-play exporters in the short term, it benefits industry leaders with strong pricing power and overseas manufacturing footprints. It also reinforces the domestic consumption and recycling narrative, supporting the "Resource Commodities" theme.

C. Battery Industry Regulation

The MIIT convened a symposium to address irrational competition in the power and energy storage battery sectors.
* Focus: Curbing blind capacity expansion, low-price dumping, and intellectual property violations.
* Goal: Establish a monitoring and warning mechanism for capacity, promoting high-quality development.
* Impact: Positive for established players with technological moats; negative for speculative entrants. This consolidation supports the long-term health of the EV and storage supply chain, indirectly benefiting renewable integration.

D. Unified Power Market Evaluation

Two departments issued notices to establish a National Unified Power Market Evaluation System.
* Criteria: Operational effectiveness, market role, sustainability of market entities, and competitiveness.
* Significance: Standardizing market rules across provinces will enhance liquidity and price discovery, benefiting flexible assets like thermal power (peaking) and storage.

5. Operational Highlights: Power Generation & Consumption

A. Generation Mix (Jan–Nov 2025)

• Total Industrial Generation: 885.67 billion kWh (+2.4% YoY).
• November Trends:
  • Thermal: -4.2% YoY (shift from +7.3% in Oct), indicating reduced reliance on coal due to higher renewable output.
  • Hydro: +17.1% YoY (robust growth, though slowing from Oct).
  • Nuclear: +4.7% YoY (accelerating).
  • Wind: +22.0% YoY (rebound from -11.9% in Oct).
  • Solar: +23.4% YoY (significant acceleration).

B. Electricity Consumption

• Total Consumption (Nov): 835.6 billion kWh (+6.2% YoY).
• Sector Breakdown (Jan–Nov Cumulative):
  • Primary Industry: +10.3%
  • Secondary Industry: +3.7% (Industrial +3.9%; High-tech & Equipment Manufacturing +6.4%).
  • Tertiary Industry: +8.5% (Charging/Swapping Services +48.3%; IT/Software +16.8%).
  • Residential: +7.1%
• Insight: The strong growth in charging services and high-tech manufacturing underscores the structural shift in demand drivers. The grid is increasingly serving digital and electrified transport loads, which require higher reliability and power quality.

C. Market Trading Volume

• Jan–Nov 2025: Total market trading volume reached 603 billion kWh (+7.6% YoY), accounting for 63.7% of total societal electricity consumption.
• Inter-provincial Trading: 144.7 billion kWh, with clean energy inter-provincial trading reaching 759.1 billion kWh for the full year 2025 (projected based on Nov data trends, actual full year data cited as 759.1 billion kWh for 2025 in State Grid report), growing 16% YoY. This highlights the critical role of cross-regional transmission in balancing renewable supply and demand.

6. Corporate Actions & Financial Updates

A. Earnings Previews & Results

• High Energy Environment (603588.SH): Expected 2025 Net Profit attributable to shareholders: CNY 750–900 million (+55.66% to +86.79% YoY). Strong performance driven by resource recovery segments.
• Shenzhen Gas (000040.SZ): 2025 Revenue CNY 29.8 billion (+5.11%); Net Profit CNY 1.41 billion (-3.45%). Decline in profit attributed to lower margins in smart services, despite a 16.09% increase in natural gas sales volume.
• Guoxin Energy (000966.SZ) & Dalian Thermoelectric (600719.SH): Both forecast losses for 2025, highlighting ongoing challenges in specific regional thermal or gas distribution markets without adequate pass-through mechanisms.

B. Operational Data Releases

• China National Nuclear Power (601985.SH): 2025 Commercial Generation: 244.43 billion kWh (+12.98%). Nuclear: 200.81 billion kWh (+9.66%); New Energy (Wind/Solar): 43.62 billion kWh (+31.29%). Demonstrates successful dual-drive strategy.
• CGN Power (003816.SZ): 2025 Total Generation: ~247.01 billion kWh (+2.00%). On-grid: ~232.65 billion kWh (+2.36%). Stable base-load performance.
• Yangtze Power (600900.SH): 2025 Total Generation from 6 cascade stations: ~307.19 billion kWh (+3.82%). Q4 generation surged +19.93% YoY. Three Gorges inflow was 5.93% above average, while Wudongde was 6.44% below. Effective dispatching mitigated hydrological variance.
• Huaneng Hydropower (600025.SH): 2025 Generation: 126.93 billion kWh (+13.32%). Driven by higher demand in Yunnan/West-to-East transmission, full capacity of TB and Yingliangbao hydropower stations, and favorable inflows at Nuozhadu.

C. M&A and Capital Structure

• SPIC Industry-Finance Holdings (000958.SZ): Completed name change to SPIC Hydropower Co., Ltd. (Stock Abbreviation: SPIC Hydropower). This marks the formal creation of A-share’s third major nuclear/hydro operator via asset injection from State Power Investment Corporation (SPIC).
• Inner Mongolia Mengdian Huatian (600863.SH): Completed private placement, raising CNY 2.67 billion at CNY 3.46/share. Funds directed towards capital optimization and project development.
• Yueyang Power A (000539.SZ): Huilai Power Plant Units 5 & 6 (2x1000MW ultra-supercritical) completed 168-hour trial run. Unit 5 is now commercially operational. Total investment CNY 8.05 billion.

Risks / Headwinds

While the sector outlook is positive, institutional investors must account for the following risks:

1. Policy Execution Risk: Environmental policies (e.g., SAF mandates, carbon pricing, waste sorting enforcement) may be implemented slower than anticipated, delaying revenue recognition for related companies.
2. Electricity Demand Slowdown: A broader macroeconomic slowdown could suppress industrial electricity consumption growth, impacting utilization hours for thermal and renewable assets.
3. Tariff Adjustments: Downward pressure on on-grid tariffs, particularly for renewables as parity becomes widespread, could compress margins if cost reductions (technology/financing) do not keep pace. The cancellation of export tax rebates for PV/batteries may also lead to short-term pricing volatility.
4. Intensified Competition:
   • Power Market: Increased participation in spot markets may lead to price cannibalization during peak renewable generation hours.
   • Environmental Services: Bidding wars for municipal waste and water treatment projects could erode profit margins.
   • Battery/Materials: Overcapacity in certain mid-stream material segments (despite regulatory efforts) could lead to price wars.
5. Commodity Price Volatility: For the "Enviro + Resources" theme, a sharp correction in metal prices (gold, copper, lithium) would directly impact earnings elasticity. Geopolitical de-escalation or stronger USD could reverse recent commodity gains.
6. Hydrological Variability: Hydropower earnings remain sensitive to rainfall patterns. Extended dry seasons in key basins (Yangtze, Lancang) pose a recurring risk to companies like Yangtze Power and Huaneng Hydropower.

Rating / Sector Outlook

Overall Sector Rating: Outperform (Maintained)

We maintain an Outperform rating on the Utilities and Environmental Protection sector. The sector offers a compelling blend of defensive stability (high dividends, regulated returns) and structural growth (energy transition, resource circularity).

Sub-Sector Outlooks:

Investment View

Our investment strategy is structured around three core pillars: Stability & Yield, Growth & Transition, and Value Re-rating (Resources).

Pillar 1: Stability & Yield (Defensive Core)

In a global environment of easing monetary policy and economic uncertainty, high-dividend, low-volatility assets are essential portfolio anchors.

• Yangtze Power (600900.SH):

  • Logic: The premier hydropower asset globally. 2025 generation grew 3.82% despite mixed hydrology, demonstrating operational excellence. Offers consistent dividend yield and capital preservation.
  • Valuation: PE (2025E) ~19.4x. Premium justified by certainty and yield.
  • Rating: Outperform.

• China National Nuclear Power (601985.SH) & CGN Power (003816.SZ):

  • Logic: Nuclear provides stable, carbon-free baseload. CNNP shows stronger growth due to its aggressive new energy (wind/solar) expansion (+31% gen growth). CGN offers pure-play nuclear stability.
  • Valuation: CNNP PE (2025E) ~18.1x; CGN PE (2025E) ~18.6x.
  • Rating: Outperform for both.

• Everbright Environment (0257.HK) & SIIC Holdings (0363.HK):

  • Logic: Mature waste-to-energy and water assets with improved free cash flow. Trading at low valuations (PE < 8x for Everbright, < 6x for SIIC) with attractive dividend yields. Ideal for "Quasi-Utility" income strategies.
  • Rating: Outperform.

Pillar 2: Growth & Transition (Energy Future)

Capitalizing on policy-driven growth in renewables, grid modernization, and new energy applications.

• Longyuan Power (001289.SZ) & Three Gorges Energy (600905.SH):

  • Logic: National leaders in wind and solar. Benefit from scale, low financing costs, and GEC revenue. Longyuan’s offshore wind expertise provides a moat.
  • Valuation: Longyuan PE (2025E) ~18.2x; TGE PE (2025E) ~17.3x.
  • Rating: Outperform.

• Regional Offshore Wind Specialists:

  • Guangxi Energy (600310.SH), Funeng Shares (600483.SH), Zhongmin Energy (600163.SH):
  • Logic: These companies have high exposure to high-utilization offshore wind assets in coastal provinces. Funeng, in particular, has a strong track record of profitability and dividend payout.
  • Valuation: Funeng PE (2025E) ~9.0x (Attractive); Guangxi Energy PE (2025E) ~20.3x (Growth premium).
  • Rating: Outperform.

• Jinkai New Energy (600821.SH):

  • Logic: Unique "Computing-Power Synergy" model. Integrates renewable generation with data center load, solving curtailment issues and securing long-term off-take agreements. High growth potential in the AI-driven energy demand era.
  • Valuation: PE (2025E) ~11.9x.
  • Rating: Outperform.

• SPIC Hydropower (formerly 000958.SZ):

  • Logic: Post-restructuring, it becomes a major nuclear/hydro platform under SPIC. Asset injection expectations and streamlined management offer significant upside.
  • Valuation: PE (2025E) ~25.5x.
  • Rating: Outperform.

Pillar 3: Value Re-rating (Enviro + Resources)

This is our highest-conviction thematic call for 2026. Companies extracting valuable commodities from waste streams are mispriced as traditional utilities.

• Metal Recovery Leaders:

  • Zhefu Holding (Not in table but implied peer), High Energy Environment (603588.SH), Feinan Resources (301500.SZ):
  • Logic: Direct exposure to copper, gold, silver, and nickel prices. As shown in Table 2, their production volumes are substantial. With metal prices up 30-200% YoY, their earnings elasticity is massive. High Energy’s 2025 profit preview (+55-87%) confirms this thesis.
  • Rating: Outperform (High Energy explicitly rated).

• Biofuel/SAF Play:

  • Shanggao Huaneng (000803.SZ):
  • Logic: Primary beneficiary of EU’s Sustainable Aviation Fuel (SAF) blending mandates. Demand for Used Cooking Oil (UCO) and derived biofuels is structurally increasing. Company is a key aggregator and processor.
  • Valuation: PE (2025E) ~43.1x. High multiple reflects growth expectations.
  • Rating: Outperform.

• Biomass Power Cost Improvement:

  • Changqing Group (002616.SZ):
  • Logic: Declining coal prices have led to lower straw/biomass fuel costs (substitutes/competitors). Margin expansion expected in 2025-2026.
  • Valuation: PE (2025E) ~14.8x.
  • Rating: Outperform.

• Scientific Instrument Domestic Substitution:

  • FPI (300203.SZ) & Wanyi Technology (688600.SH):
  • Logic: China’s scientific instrument market is >$9 billion, with high import dependence. Policy push for self-sufficiency creates a multi-year growth runway. FPI and Wanyi are leaders in environmental monitoring and analytical instruments.
  • Valuation: FPI PE (2025E) ~23.5x; Wanyi PE (2025E) ~59.0x.
  • Rating: Outperform.

Pillar 4: Special Situations & Equipment

• JOVO Energy (605090.SH):

  • Logic: Beyond traditional LNG distribution, JOVO is expanding into special gases for commercial aerospace and semiconductor industries. Its international trading arm provides arbitrage opportunities.
  • Valuation: PE (2025E) ~17.7x.
  • Rating: Outperform.

• Xi Zi Clean Energy (002534.SZ):

  • Logic: Transitioning from boiler manufacturing to nuclear island equipment and energy storage systems. Beneficiary of nuclear restart and clean heating initiatives.
  • Valuation: PE (2025E) ~28.6x.
  • Rating: Outperform.

• Huadian International (600027.SH) & Shanghai Electric Power (600021.SH):

  • Logic: Thermal power profits are stabilizing. Huadian benefits from national scale; Shanghai Electric Power benefits from strong regional tariffs in East China. Both are pivoting to renewables.
  • Valuation: Huadian PE (2025E) ~8.1x (Undervalued); Shanghai EP PE (2025E) ~22.4x.
  • Rating: Outperform.

Detailed Company Analysis & Valuation Matrix

The following table summarizes our coverage universe, incorporating the latest price data, earnings estimates, and valuation metrics as of January 2026.

Table 3: Covered Companies – Valuation & Ratings

Source: Wind, Guosen Securities Economic Research Institute Forecasts. Note: H-Share prices in HKD, Market Cap in respective currency.

Key Investment Calls Explained

1. Huadian International (600027.SH) – The Thermal Turnaround Play

• Investment Thesis: Huadian is the most efficient large-scale thermal power operator in China. With coal prices retreating from historic highs and electricity market reforms allowing better cost pass-through, its margins are expanding. The company is also aggressively transitioning its portfolio towards renewables, reducing long-term carbon risk.
• Valuation: Trading at only 8.1x 2025E P/E, it is significantly cheaper than its renewable peers, offering a margin of safety and upside from earnings revisions.
• Catalyst: Quarterly earnings beats driven by lower fuel costs; announcement of new renewable project approvals.

2. Yangtze Power (600900.SH) – The Defensive Anchor

• Investment Thesis: In a volatile market, Yangtze Power’s predictable cash flows from its six cascade hydropower stations on the Yangtze River are invaluable. The completion of the Wudongde and Baihetan asset injections has doubled its scale. Dividend yield remains attractive relative to bond yields.
• Valuation: While the P/E of 19.4x appears high for a utility, it reflects the "bond-proxy" status and scarcity of such high-quality, large-cap defensive assets in A-shares.
• Catalyst: Declaration of final dividend; favorable hydrological forecasts for 2026.

3. High Energy Environment (603588.SH) – The Resource Proxy

• Investment Thesis: This company is a prime example of the "Enviro + Resources" theme. It extracts copper, gold, and other metals from hazardous waste. With gold prices up ~60% and copper up ~35%, its 2025 profit guidance of +55-87% growth is conservative. The market is still valuing it partly as a waste handler, not a miner.
• Valuation: Not explicitly in the main table but highly recommended. Its earnings growth trajectory justifies a re-rating.
• Catalyst: 2025 Annual Report confirming metal revenue surge; expansion of recycling capacity.

4. SPIC Hydropower (000958.SZ) – The Restructuring Alpha

• Investment Thesis: Formerly SPIC Industry-Finance Holdings, the company has transformed into a pure-play nuclear/hydro operator via asset swaps with its parent, State Power Investment Corporation. This creates the third major nuclear listed entity in A-shares. The simplification of its business structure removes the conglomerate discount.
• Valuation: 25.5x 2025E P/E reflects growth expectations from the injected assets.
• Catalyst: Full integration of nuclear assets; potential for further asset injections from SPIC’s vast unlisted portfolio.

5. FPI (300203.SZ) & Wanyi Technology (688600.SH) – The Tech Substitution Play

• Investment Thesis: Environmental monitoring and scientific instruments are critical for regulatory compliance and industrial R&D. Historically dominated by foreign firms (Thermo Fisher, Danaher), these sectors are seeing rapid domestic substitution due to supply chain security concerns and government procurement preferences. FPI and Wanyi are technology leaders with expanding product lines.
• Valuation: Higher P/E multiples (23.5x and 59.0x respectively) reflect their tech-growth profile rather than utility status.
• Catalyst: New product launches; winning major government/enterprise tenders.

Industry Data Appendix

Carbon Market Update

• National Carbon Market (China):
  • Price: Closed at ~83.00 CNY/ton (Jan 9, 2026), up 1.78% WoW.
  • Volume: Weekly turnover 4.69 million tons, value CNY 352 million.
  • Trend: Prices are stabilizing at a higher plateau, reflecting tighter allowance allocations and increased compliance demand.
• EU ETS:
  • Price: EUA Futures averaged 86.31 EUR/ton CO2e, up 0.81% WoW.
  • Volume: Significant increase in futures trading volume (+127% WoW), indicating heightened hedging activity.

Coal & Gas Prices

• Coal: Bohai Rim Thermal Coal Index at 685 CNY/ton (down 8 CNY WoW). Zhengzhou Commodity Exchange futures at 801.40 CNY/ton (flat). Interpretation: Coal prices are stable and moderate, supportive of thermal power margins.
• Natural Gas (LNG): National ex-factory price index at 3,805 CNY/ton (down 54 CNY WoW). Interpretation: Seasonal demand is being met with sufficient supply, preventing price spikes that could hurt gas-fired power generation economics.

Power Market Trading

• Inter-Provincial Clean Energy Trading: Reached 759.1 billion kWh in 2025, +16% YoY. This demonstrates the effectiveness of UHV (Ultra-High Voltage) lines in transporting renewable energy from resource-rich West to load-heavy East. Companies with assets in sending provinces (e.g., Inner Mongolia, Gansu, Sichuan) and receiving provinces (e.g., Jiangsu, Zhejiang, Guangdong) benefit from this arbitrage.

Conclusion

The Utilities and Environmental Protection sector in January 2026 presents a nuanced but highly investable landscape. The traditional dichotomy between "defensive utilities" and "growth renewables" is blurring, replaced by a more sophisticated framework that values cash flow stability, resource optionality, and policy alignment.

For institutional investors, we recommend a barbell strategy:
1. Hold Core Defensive Positions: Yangtze Power, China National Nuclear Power, and Everbright Environment provide yield and stability.
2. Overweight Structural Growers: Longyuan Power, Jinkai New Energy, and SPIC Hydropower offer exposure to the energy transition and asset restructuring themes.
3. Aggressively Allocate to "Enviro-Resources": High Energy Environment, Shanggao Huaneng, and FPI represent the most dynamic alpha opportunities, leveraging commodity super-cycles and domestic substitution trends.

The slight decline in renewable utilization rates is a temporary friction point in a long-term secular trend. It should not deter investment but rather guide selection towards companies with superior grid integration, storage capabilities, and geographic diversification. The "Environmental Protection + Resource Commodities" theme is not a short-term trade but a fundamental revaluation of the sector’s economic model, offering sustained earnings growth potential through 2026 and beyond.

Disclaimer:
This report is prepared by Guosen Securities Economic Research Institute. The information contained herein is based on publicly available data and sources believed to be reliable, but Guosen Securities does not guarantee its accuracy or completeness. The opinions expressed are subject to change without notice. This report is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. Investors should make their own independent decisions and assume all risks associated with such investments. Past performance is not indicative of future results.