CITIC SEC: Strengthen the Foundation of the Power System to Support the Quality Improvement of Energy Transition

CITIC SEC released a research report stating that on August 3, 2026, the National Development and Reform Commission and the National Energy Administration will issue the "14th Five-Year Plan for the Construction of a New Power System" (hereinafter referred to as the "Plan"). As a top-level document in the electricity sector, the "Plan" complements the "14th Five-Year Plan for Renewable Energy" and the "14th Five-Year Plan for New Energy System Construction," among others, with integrated coordination of "source, grid, load, and storage" as the main line, shifting the electricity industry from solely increasing new energy capacity to comprehensive regional management. The "Plan" sets quantifiable targets around power generation, grid, regulation resources, load, and markets, aiming for the initial establishment of a new power system by 2030, with the proportion of non-fossil energy power generation rising to 50%. The bank believes that the policy may continue to favor the fields of ultra-high voltage, smart distribution networks, various types of energy storage/virtual power plants, clean power development, and electricity digitalization, while accelerating the implementation of policies like the capacity compensation mechanism and capacity markets. Key points from CITIC SEC are as follows: Event On August 3, 2026, the National Development and Reform Commission and the National Energy Administration will jointly release the "14th Five-Year Plan for the Construction of a New Power System" (hereinafter referred to as the "Plan"), serving as a systematic top-level document for Chinas electricity sector from 2026 to 2030, inheriting the requirements of the "14th Five-Year Plan for Renewable Energy Development" and implementing the overall plan for the construction of a new energy system. The "Plan" focuses on integrated coordination of "source, grid, load, and storage," addressing pain points such as system security under high proportions of new energy access, bottlenecks in transmission channels, insufficient regulatory resources, and gaps in market mechanisms, explicitly transitioning from "solely increasing new energy capacity" to "comprehensive management of power supply, grid, energy storage, load, and market." The "Plan" proposes to initially establish a clean, low-carbon, secure, abundant, economically efficient, supply-demand coordinated, and intelligent flexible new power system by 2030, supporting the proportion of non-fossil energy power generation to reach 50%, thereby building a complete operational foundation for wind and solar energy to become the main power source. The "Plan" sets quantifiable targets in five dimensions: power supply, grid structure, regulation capability, load interaction, and electricity market, constructing a complete indicator system for "source, grid, load, and storage": 1) Supply Side: Coordinating clean power with traditional supporting power sources. The "Plan" proposes to increase the proportion of non-fossil energy power generation to 50% by 2030; the total installed capacity of electricity nationwide is expected to reach 5.4 billion kilowatts. On one hand, it continues to support the orderly development of large wind and solar bases, deep-sea wind power, and distributed new energy, while simultaneously promoting the construction of diverse clean power sources such as hydropower, nuclear power, biomass, and solar thermal; on the other hand, it clarifies the repositioning of coal power, promoting its transformation from being a fundamental security power source to a supporting regulatory power source, implementing flexibility upgrades, maintaining the system's backup supply capability while adhering to the principle of establishing first before breaking. It also sets regional utilization rate targets for new energy, maintaining around 90% for Shanxi Guoxin Energy Corporation to alleviate the pressure of power abandonment from the source. 2) Grid Side: The carrying capacity indicators are significantly expanded, opening up channels for the delivery and localized absorption of new energy. The "Plan" proposes to establish a transmission capacity for west-to-east electricity transfer of over 420 million kilowatts by 2030, planning several new ultra-high voltage direct current channels; the inter-provincial electricity mutual assistance capacity will increase from 80 million kilowatts to 120 million kilowatts; the distribution network's capacity for distributed new energy will rise from 500 million kilowatts to 900 million kilowatts. A multi-layered coordinated grid structure of "large grid + regional grid + distribution network + microgrid" will be constructed, balancing two major scenarios of long-distance delivery from the "Three Norths" bases and nearby absorption of distributed energy in the central and eastern regions, solving the bottleneck of new energy absorption. 3) Quantitative implementation of system regulation resources to address the volatility shortfalls of new energy. The planning coordinates long and short-term regulation resources, with a pumped storage capacity target of 160 million kilowatts and a new energy storage capacity target of 300 million kilowatts; it will also vigorously develop demand-side resources, aiming for the peak shaving capacity on the demand side to increase to 5% of maximum load by 2030; the maximum regulation capability of virtual power plants will exceed 50 million kilowatts, and the interactive aggregation of EV charging will reach 50 million kilowatts. Regulation resources will extend from solely power-side storage to diversified regulatory collaboration across power generation, grid, and user ends, echoing the reliability capacity and peak supply capability assessment requirements outlined in the "14th Five-Year Plan for Renewable Energy." 4) Load-side collaboration mechanisms will be upgraded to activate terminal flexible resources. Continuous promotion of electricity substitution aims to increase the proportion of electricity in terminal energy consumption to 35%. Industrial parks, computing power centers, and commercial buildings are encouraged to carry out adjustable load renovations, promoting new business models such as microgrids, green power direct supply, and nearby absorption. This breaks the traditional "source follows load" model, pushing towards realizing "load follows source" to expand the space for renewable energy absorption, forming a synergy with the non-electric utilization of renewable energy. 5) Clear targets for electricity market reform, perfecting complementary systems for transformation. The "Plan" specifies that by 2030, the proportion of market traded electricity will rise to 70%, and inter-provincial and inter-regional transaction volumes will exceed 2 trillion kWh. There will be sustained improvements in the medium-to-long-term, spot, and ancillary service markets, along with progress in capacity compensation and transmission rights mechanisms, adapting to the dual-value realization of new energy in terms of both electricity volume and capacity, providing market price support for the reliability capacity and peak capability assessments of wind and solar. Looking ahead to subsequent policy rhythms and investment opportunities: 1) Power Grid Infrastructure Construction. Under the guidance of the "Plan," we expect ongoing boosts for ultra-high voltage AC and DC transmission channels, upgrades of regional backbone networks, smart distribution network transformations, and microgrid system constructions. It is advisable to pay attention to transmission equipment, distribution automation, and digitalized smart grid equipment; at the same time, the enhancement of distribution network capacity will fully release space for distributed photovoltaic development, benefiting the entities responsible for distributed development and operation. 2) Various types of flexible regulation resources. First, in the energy storage sector, the accelerated construction of pumped storage facilities, and the sustained release of demand for independent storage and new types of user-side storage; second, flexibility upgrades for traditional power sources, orderly progress of flexibility retrofits for existing coal power, and gas peaking plants; third, on the demand-side regulation resources, virtual power plant platforms, load aggregation service providers, vehicle-grid interactions, and intelligent charging and discharging devices are expected to have long-term growth opportunities. 3) Collaborative development of clean power sources. Relying on the planning of inter-provincial and inter-regional transmission channels, the pace of construction for the "Three Norths" wind and solar bases and offshore wind power development is likely to accelerate; at the same time, orderly expansion of nuclear power and more policy support for renewable energy with regulatory attributes such as solar thermal and biomass may be anticipated. 4) Electricity Market and Digitalization. We expect that under clear policy demands for reliability capacity and peak supply capability assessments, the construction of the electricity capacity market may become the focus of the next phase of electricity market reform. Meanwhile, it is advisable to pay attention to the demand for electricity trading platforms, load management systems, power simulation scheduling systems, and energy digital platforms. Risk Factors: Progress of electricity market reform may not meet expectations; technological advancements in the new energy system may fall short of expectations; progress in traditional energy substitutions may lag; construction schedules for ultra-high voltage and energy storage projects may be delayed; and business models for flexible resources on the load side may exhibit weak profitability.