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

According to the report released by China International Capital Corporation (CICC), based on data from the National Energy Administration, the national grid engineering investment reached 43.6 billion yuan in January-February 2025, a year-on-year increase of 33.5%. The State Grid's investment in the first quarter increased by 27.7% year-on-year, marking a historical high for the first quarter. The construction of ultra-high voltage projects is progressing in an orderly manner, and the bidding volume for ultra-high voltage equipment continues to grow significantly. We remain optimistic about the acceleration of the new power system, with domestic grid investment showing an upward trend. Recommended stocks include: 1) Ultra-high voltage and main grid: Pinggao Electric (600312.SH), XJ Electric (000400.SZ), Guodian Nari (600406.SH), China XD Electric (601179.SH), Siyuan Electric (002028.SZ); 2) Virtual power plants: SPRIXIN (301162.SZ), Longxin Group (300682.SZ). CICC's main viewpoints are as follows: State Grid's first quarter investment in the grid hits a new high, maintaining an optimistic outlook on grid investment The State Grid's investment in the first quarter increased by 27.7% year-on-year, reaching a historical high for the first quarter. The Datong-Huailai-Tianjin South ultra-high voltage project commenced construction in March, and other ongoing ultra-high voltage projects are progressing in an orderly manner; we expect the national grid engineering investment CAGR from 2025 to 2026 to reach around 10%. Strong demand for ultra-high voltage and high voltage, batch results of distribution network joint procurement gradually announced In terms of ultra-high voltage, as of the end of March 2025, the announced bidding amount for ultra-high voltage equipment is approximately 10.2 billion yuan, of which over 7 billion yuan is for AC projects. The number of core equipment for 1000kV intervals has significantly increased compared to last year, and the certainty of ultra-high voltage AC projects being approved for construction this year is relatively high, with 4 ultra-high voltage AC lines expected to be approved for construction, benefiting leading high voltage switch companies. 2) Non-ultra-high voltage main grid: In the second batch of substation equipment bidding by the State Grid in 2025, the bidding volume for 750kV transformers/composite electrical appliances increased by 148%/155% year-on-year, corresponding to strong demand for the construction of the northwest ultra-high voltage backbone grid. The bidding volume for relay protection equipment increased by 64% year-on-year, highlighting the importance of power system safety and stability. 3) Distribution network: The results of the first batch of distribution network joint procurement are gradually being announced. According to the results of the 10kV pole-mounted transformer complete equipment in the North China region, the unit price of this batch of equipment has decreased by about 10%, and there is an upward trend in the bidding volume, with several leading companies increasing their market share. Accelerated construction of the electricity spot market, virtual power plant profitability model expected to improve Recently, the Southern Power Grid released the "Work Plan for New Energy Participation in the Electricity Spot Market (2025 Edition)" (draft for comments), promoting the full participation of centralized and distributed new energy 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 national-level document focusing on virtual power plants, setting development goals for regulation capabilities. We are optimistic about the accelerated pace of electricity spot market construction across the country this year, with virtual power plants expected to accelerate development as one of the optimal solutions for aggregating distributed resources, benefiting software and hardware suppliers and aggregators with project experience Risk Factors New energy installation falls short of expectations, grid investment falls short of expectations, macro policy environment impacts