Gf Securities released a research report analyzing electricity demand and supply trends. On the demand side, secondary industries contributed 79% of the growth in power consumption due to base effects, marking the first time this year they exceeded their structural share (46% from January to September). On the supply side, wind and solar accounted for 50% of the incremental power generation, with their cumulative share reaching 112% over the first nine months, underscoring the ongoing energy transition.

Hydropower stocks have seen significant declines since early July due to market sentiment and fundamentals, but recent improvements in hydrological conditions have notably enhanced their investment appeal. Meanwhile, thermal power has turned free cash flow positive, with leading Hong Kong-listed players offering dividend yields above 7%, while several A-share companies exceed 5%. Coupled with robust Q3 earnings surprises and clear market-cap management, the sector is poised for sustained stability.

Key insights from Gf Securities: 1. **Power Demand Recovery**: In September, secondary industry consumption grew 5.7% YoY, continuing its recovery amid low base effects. Residential demand fell 2.6% due to high YoY comparisons. Industrial restructuring trends persisted, with sectors like electrical machinery driving growth while non-metallic and有色金屬 industries remained under pressure. 2. **Generation Mix Shift**: Hydropower output surged 31.9% YoY in September, fueled by autumn floods and a low base, pushing thermal generation down 5.4%. Wind and nuclear grew modestly (7.6% and 1.6%, respectively), while solar expanded 21.1%. 3. **Hydropower Revival**: After weak inflows during July-August (-30% to -50% YoY), autumn floods reversed the trend, with September inflows up over 50% YoY. Key projects like China Yangtze Power’s stations saw generation jump 74% in September and 93% in October. With historically low comparables ahead, high growth is expected to continue. 4. **Thermal Power Outlook**: Despite hydropower’s squeeze, thermal coal prices (Q5500 at Qinhuangdao) recently rose RMB59/t to RMB765/t, likely stabilizing at elevated levels. Consensus is building around stabilizing power tariffs and coal prices, potentially reigniting sector optimism. Capacity tariffs and ancillary services further support earnings stability.

**Risks**: Policy delays, coal price spikes, or slower renewable capacity additions could disrupt forecasts.