Power Equipment Sector Weekly: Unwavering Green Commitment Clarifies the New Cycle for China’s Power Systems

Date: November 11, 2025
Sector: Power Equipment / Renewable Energy
Rating: Overweight (Maintained)
Analyst: Liu Ning (SAC No. S1660524090001)
Source: Shengang Securities Research Institute

Executive Summary

The release of the white paper "China’s Actions for Carbon Peaking and Carbon Neutrality" by the State Council Information Office on November 8, 2025, serves as a definitive policy anchor for the power equipment sector. The document reaffirms China’s strategic commitment to green development, outlining a robust "1+N" policy framework that provides clear timelines and roadmaps for the energy transition. This regulatory clarity signals the beginning of a new, more defined cycle for the construction of China’s new-type power systems, characterized by the deep integration of renewable energy generation and energy storage.

Our analysis indicates that the structural transformation of China’s energy mix is accelerating beyond initial expectations. Non-fossil energy consumption has risen steadily, while wind and solar installations have tripled since 2020, accounting for approximately 80% of new power capacity additions. Crucially, the systemic challenge of grid stability is being addressed through an explosive growth in energy storage capabilities. By the end of 2024, new-type energy storage installations reached 73.76 GW / 168 GWh, a twenty-fold increase from 2020 levels, positioning China as the global leader with over 40% of the world’s total installed capacity.

From an investment perspective, the long-term trajectory for "Energy Storage + New Power Systems" is now unequivocal. We maintain an Overweight rating on the Power Equipment sector. We advise institutional investors to focus on industry leaders with superior technological moats, dominant shipment volumes, and resilient profitability profiles. Specifically, companies such as CATL (Contemporary Amperex Technology Co., Limited) and Sungrow Power Supply are well-positioned to capitalize on this multi-year infrastructure build-out. While short-term market volatility persists, the fundamental drivers supported by state-level policy and tangible capacity expansions provide a strong foundation for sustained sector growth.

Key Takeaways

1. Policy Framework Solidifies the Green Transition Roadmap

The issuance of the "China’s Actions for Carbon Peaking and Carbon Neutrality" white paper is not merely a rhetorical statement but a comprehensive operational guide for the next decade of energy development. The establishment of the "1+N" policy system represents the most systematic carbon reduction framework globally, providing the certainty required for large-scale capital expenditure in the power sector.

Key Policy & Structural Metrics:
* Strategic Status: Carbon peaking and neutrality are elevated to national strategy status, driving a comprehensive green transformation of economic and social development.
* Non-Fossil Energy Shift: The share of non-fossil energy in total consumption increased from 16.0% in 2020 to 19.8% in 2024, representing an average annual increase of nearly 1 percentage point. Concurrently, the share of fossil energy consumption declined from 84.0% in 2020 to 80.2% in 2024.
* Market Mechanisms: The perfection of the carbon emission trading system and the revitalization of the Green Certificate (GC) and Green Power markets are critical enablers. As of August 2025, China had issued a cumulative 6.924 billion Green Certificates, with 4.656 billion available for trading. The green power trading market, launched in September 2021, facilitated transactions of 205 billion kWh by August 2025, marking a year-on-year growth of 43.3%. This demonstrates a maturing market mechanism that monetizes the environmental attributes of renewable energy, thereby improving the economics of green power projects.

2. Renewable Energy Capacity Expansion at Unprecedented Scale

The data presented in the white paper highlights the sheer scale of China’s renewable energy deployment. The country has successfully decoupled economic growth from carbon intensity through massive infrastructure investment.

Wind and Solar Dominance:
* Installed Capacity: As of the end of August 2025, the combined installed capacity of wind and photovoltaic (PV) power exceeded 1.69 billion kW (1,690 GW). This figure is more than three times the capacity recorded in 2020.
* Contribution to Growth: Wind and solar have been the primary engines of power sector expansion, contributing approximately 80% of all new power generation capacity added since 2020.
* Generation Share: The proportion of electricity generated from wind and solar is climbing steadily, increasing by an average of 2.2 percentage points annually. This trend underscores the transition from capacity installation to actual energy contribution, although it also highlights the growing need for grid flexibility to manage intermittency.

Diversification of Clean Energy Sources:
* Hydropower: Conventional hydropower remains a stable backbone, with an installed capacity of approximately 380 million kW (380 GW) as of August 2025. Pumped storage hydro, a critical form of long-duration energy storage, reached 62.365 million kW (62.365 GW).
* Nuclear Power: China continues to expand its nuclear fleet responsibly. As of August 2025, there were 112 nuclear power units in operation, under construction, or approved for construction, with a total capacity of 125 million kW (125 GW). This places China first globally in terms of nuclear development pipeline and scale, providing essential baseload low-carbon power.
* Green Hydrogen: By the end of 2024, China’s green hydrogen production capacity exceeded 150,000 tons per year, ranking first worldwide. This emerging sector offers a pathway for decarbonizing hard-to-abate industries and provides long-term seasonal storage potential.
* Biomass: Biomass power generation capacity reached 46.88 million kW (46.88 GW) by August 2025, a 1.6x increase from 2020 levels, contributing to waste management and rural energy solutions.

3. Energy Storage: The Critical Enabler of the New Power System

Perhaps the most significant implication for the power equipment sector is the exponential growth in energy storage. The white paper explicitly links the rise of renewables with the necessity of enhanced system regulation capabilities. The phrase "New Energy + Storage" is no longer a conceptual pilot but a mainstream deployment strategy.

Storage Market Explosion:
* Scale: By the end of 2024, new-type energy storage (primarily lithium-ion battery storage) installations reached 73.76 million kW (73.76 GW) in power and 168 million kWh (168 GWh) in energy capacity.
* Growth Trajectory: This represents a 20-fold increase compared to 2020 levels. Such hyper-growth indicates that storage is transitioning from a niche auxiliary service to a core component of grid infrastructure.
* Global Leadership: China’s installed new-type storage capacity now accounts for over 40% of the global total. This dominance suggests that Chinese manufacturers will continue to lead global supply chains, benefiting from economies of scale and technological iteration speeds that competitors outside China may struggle to match.

Implication for Equipment Manufacturers:
The surge in storage demand directly benefits battery manufacturers, power conversion system (PCS) providers, and system integrators. The requirement for higher safety standards, longer cycle lives, and better grid-forming capabilities favors head enterprises with strong R&D capabilities. The integration of storage with wind and solar farms is becoming a standard permitting and grid-connection requirement, creating a recurring revenue stream for equipment suppliers.

4. Sector Performance Review: Strong Relative Strength

The power equipment sector demonstrated robust performance in the week leading up to November 11, 2025, outperforming broader market indices. This price action reflects investor confidence in the policy tailwinds described above.

Weekly Market Data (Week ending Nov 11, 2025):

Sub-Sector Performance Divergence:
Performance within the power equipment sector was uneven, reflecting specific thematic rotations:
* Grid Equipment: +12.46%. This sub-sector led the rally, likely driven by expectations of increased grid investment to accommodate renewable integration and the modernization of transmission infrastructure.
* Photovoltaic (PV) Equipment: +6.77%. Strong performance supported by the continued dominance of solar in new installations and potential stabilization of module prices.
* Other Power Equipment: +6.06%.
* Battery: +2.08%. Moderate gains, possibly constrained by concerns over raw material price fluctuations despite strong volume growth.
* Wind Power Equipment: +0.51%. Lagged behind solar and grid, potentially due to slower offshore wind project approvals or margin pressures.
* Motor II: -2.07%. The only declining sub-sector, indicating specific company-level issues or rotation out of industrial motor stocks.

Top Movers:
* Top 5 Gainers: Zhongneng Electric, Huasheng Lithium, Hailu Heavy Industry, Moen Electric, Canadian Solar (Artes). These stocks likely benefited from specific news flows or smaller cap elasticity.
* Top 5 Decliners: Tonghe Technology, Kedali, Nakonor, Nanwang Technology, Lead Intelligent. Profit-taking or specific operational concerns may have weighed on these names.

5. Lithium Battery & Material Price Trends

While the report highlights the strategic importance of storage, it also monitors the cost inputs for battery manufacturing. Understanding these price dynamics is crucial for assessing margin trends for battery makers and integrators.

(Note: Specific numerical values for Figures 6-10 were not provided in the text, but the inclusion of these charts in the original report implies ongoing monitoring of the following key indicators. Investors should track these for margin compression/expansion signals.)

• Lithium Carbonate Prices (Figure 6): A key determinant of battery cell costs. Stabilization or decline in lithium prices generally supports downstream demand by lowering system costs, though it may pressure upstream miners.
• Battery Cell Prices (Figure 7): Directly impacts the profitability of battery manufacturers like CATL and BYD. Competitive pricing is essential for maintaining market share in the storage sector.
• Cathode Material Prices (Figure 8): Influences the cost structure of LFP and NMC batteries.
• Separator Prices (Figure 9): A critical component with high technical barriers; price stability here indicates healthy supply-demand balance.
• Electrolyte Prices (Figure 10): Volatility in electrolyte prices can affect short-term margins for cell makers.

Analytical View: The sustained growth in storage installations (20x since 2020) suggests that volume growth is currently offsetting any potential margin pressure from material price fluctuations. Leading companies with vertical integration or long-term supply contracts are better insulated from raw material volatility.

Investment Logic & Strategy

The "Storage + New Power System" Long-Cycle Thesis

The core investment thesis for the Power Equipment sector has shifted from a pure "capacity installation" story to a "system integration and stability" narrative. The white paper confirms that the next phase of China’s energy transition will be defined by the ability to manage variability. This creates a durable, long-cycle demand for energy storage solutions and smart grid technologies.

Why Now?
1. Policy Certainty: The "1+N" framework removes regulatory ambiguity, allowing utilities and independent power producers (IPPs) to commit to long-term storage projects with confidence.
2. Economic Viability: The growth of the Green Certificate and Green Power trading markets improves the internal rate of return (IRR) for renewable projects, making the additional cost of co-located storage more absorbable.
3. Technological Maturity: The 20-fold growth in storage capacity since 2020 proves that the technology is scalable and reliable. The industry is moving past the pilot phase into mass deployment.

Recommended Focus: Quality Leaders

In a market characterized by rapid expansion, not all participants will survive. We recommend focusing on head enterprises that possess three key attributes:
1. Strong Technical Strength: Ability to deliver high-safety, long-cycle-life battery systems and advanced grid-forming inverters.
2. Leading Shipment Volumes: Economies of scale are critical in maintaining cost competitiveness. Market leaders can leverage their size to negotiate better supply chain terms.
3. Outstanding Profitability: In a competitive landscape, companies that maintain healthy margins demonstrate superior product differentiation and operational efficiency.

Top Picks:

• CATL (Contemporary Amperex Technology Co., Limited):

  • Rationale: As the global leader in lithium-ion batteries, CATL is uniquely positioned to benefit from the storage boom. Its technological leadership in battery chemistry (e.g., sodium-ion, condensed matter) and its massive manufacturing scale allow it to offer cost-effective storage solutions. The company’s strong balance sheet enables continued R&D investment, keeping it ahead of competitors. Its dominance in both EV and ESS (Energy Storage Systems) markets provides diversification and resilience.

• Sungrow Power Supply:

  • Rationale: Sungrow is a global leader in PV inverters and energy storage systems. The company has successfully pivoted to become a major player in the storage integration space. Its expertise in power electronics is crucial for the "New Power System," where grid interaction and stability are paramount. Sungrow’s strong international presence also provides a hedge against domestic market saturation, although the current thesis is primarily driven by China’s domestic policy push. Its ability to provide integrated "PV + Storage" solutions makes it a preferred partner for large-scale utility projects.

Risks / Headwinds

While the long-term outlook is positive, institutional investors must remain cognizant of the following risks:

1. Demand Misses Expectations

• Grid Connection Bottlenecks: Despite policy support, physical grid constraints could delay the connection of new renewable and storage projects. If the grid infrastructure upgrades lag behind generation capacity additions, curtailment rates may rise, dampening the economic incentive for further investment.
• Project Execution Delays: Large-scale infrastructure projects are subject to permitting, land acquisition, and financing delays. Any significant slowdown in the execution of the "1+N" roadmap could impact near-term revenue recognition for equipment suppliers.

2. Technological Disruption

• Alternative Storage Technologies: While lithium-ion is currently dominant, rapid advancements in alternative technologies (e.g., flow batteries, compressed air energy storage, gravity storage) could disrupt the market share of current leaders. If non-lithium technologies achieve commercial viability faster than expected, companies heavily invested in lithium supply chains may face stranded asset risks.
• Efficiency Gains: Unexpected breakthroughs in battery energy density or cost reduction could render existing inventory or production lines obsolete, requiring significant write-downs or capex for retooling.

3. Market Competition and Margin Pressure

• Price Wars: The attractiveness of the storage sector has drawn numerous entrants. Intensifying competition could lead to aggressive pricing strategies, eroding gross margins for even the leading players. While volume may grow, profitability per unit could decline.
• Raw Material Volatility: Although prices have stabilized recently, geopolitical tensions or supply chain disruptions could cause sudden spikes in lithium, nickel, or cobalt prices, squeezing manufacturer margins if costs cannot be passed down to customers.

4. Policy Implementation Variance

• Local Government Fiscal Constraints: The implementation of national policies often relies on local government funding and incentives. Fiscal pressures on local governments could slow down the rollout of subsidized projects or delay payments for completed infrastructure, affecting the cash flow cycles of equipment suppliers.

Rating / Sector Outlook

Rating: Overweight (Maintained)

We maintain our Overweight rating on the Power Equipment sector. The release of the "China’s Actions for Carbon Peaking and Carbon Neutrality" white paper provides a robust fundamental backdrop for the sector. The clarity of the "1+N" policy framework, combined with the tangible data on renewable and storage capacity growth, confirms that we are in the early-to-mid stages of a multi-year super-cycle for new power system infrastructure.

Sector Outlook:
* Short-Term (6 Months): Expect continued volatility as the market digests quarterly earnings and navigates raw material price fluctuations. However, policy-driven catalysts should provide a floor for valuations. Grid equipment and storage integrators are likely to outperform pure-play module manufacturers.
* Medium-to-Long Term (1-3 Years): The structural growth story remains intact. The compounding effect of renewable installations and the mandatory addition of storage will drive sustained revenue growth for top-tier equipment suppliers. The sector is transitioning from a policy-driven beta play to an alpha-driven market where technological leadership and cost efficiency determine winners.

Valuation Perspective:
Given the high visibility of order books for leading companies like CATL and Sungrow, and the strategic importance of their products to national security and energy independence, current valuations appear reasonable relative to their long-term growth trajectories. The sector’s recent outperformance (+4.98% vs. +0.82% for CSI 300) suggests renewed institutional interest, which we expect to persist as earnings visibility improves.

Investment View

The power equipment sector stands at a pivotal juncture. The narrative has evolved from "can we build it?" to "how efficiently can we integrate it?" The white paper released on November 8, 2025, answers the latter by emphasizing system regulation, storage, and market mechanisms.

For institutional investors, the key takeaway is to look beyond simple capacity numbers. The value creation in the next cycle will come from companies that enable the stability and efficiency of the grid. This favors:
1. Storage Leaders: Companies that can deliver safe, cost-effective, and long-duration storage solutions.
2. Grid Tech Providers: Firms involved in smart grid upgrades, HVDC transmission, and digital grid management.
3. Integrated Players: Companies like Sungrow that offer holistic solutions combining generation and storage.

We recommend building positions in high-quality leaders such as CATL and Sungrow on any market dips. These companies possess the scale, technology, and financial strength to navigate the competitive landscape and capture the majority of the value created by China’s unwavering commitment to green development. The "New Power System" is not just a concept; it is a tangible, rapidly expanding infrastructure project with clear policy backing and strong economic fundamentals.

Final Note: Investors should monitor weekly data on lithium prices and grid equipment bidding results as leading indicators of margin trends and demand health. While risks regarding technological disruption and competition exist, the magnitude of the state-backed transition provides a significant margin of safety for established industry leaders.

Appendix: Data Summary Table

Sources: State Council Information Office White Paper, Shengang Securities Research Institute, Wind, iFinD.

Disclaimer:
This report is prepared by Shengang Securities Research Institute for professional investors and ordinary investors with risk tolerance levels C3, C4, and C5. The information contained herein is based on sources believed to be reliable, but Shengang Securities does not guarantee its accuracy or completeness. The views, logic, and evidence presented are the independent research results of the analyst and are not influenced by any third party. This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Investors should make their own investment decisions and bear the associated risks. Past performance is not indicative of future results.