CMSC has released a research report stating that, driven by three key catalysts—spot and settlement electricity prices exceeding expectations, the El Niño phenomenon boosting power demand and improving water inflows, and strengthened policies for computing-power synergy—the firm is optimistic about structural opportunities in the power sector during the earnings reporting gap. Against the backdrop of rising coal prices, the report recommends integrated coal-power companies with relatively controllable costs on the thermal power side and suggests focusing on nationwide power companies with relatively strong settlement price performance.

Climate Catalyst: Rising coal prices are expected to support higher electricity prices next year, with hydropower and nuclear power likely to benefit significantly. The El Niño event is anticipated to improve water inflows.

Computing Catalyst: The report recommends high-quality local energy enterprises located in data center hubs, benefiting from computing-power synergy catalysts, and offering high dividend yields.

CMSC's main views are as follows:

First Catalyst: Spot and settlement electricity prices have exceeded expectations, leading to strong performance for the power sector in 2025 and Q1 2026. Benefiting from the continuous decline in coal prices, the total profit of the power sector reached a new high of 306.436 billion yuan in 2025, a year-on-year increase of 9.4%. Due to the high base of coal prices in Q1 2025, coal prices in Q1 2026 still showed a year-on-year decline. Since March this year, influenced by the continued deterioration of geopolitical situations, international natural gas and coal prices have risen sharply. Coupled with robust industrial production and higher temperatures increasing cooling demand, spot markets in southern regions like Guangdong have experienced periodic high electricity prices. Although annual long-term contract prices saw significant declines previously, the actual settlement prices for most companies were better than expected. Combined with cost optimization, the power sector also achieved solid performance in Q1 2026. With expectations that coal prices will stabilize and rise year-on-year this year, next year's electricity price negotiations are anticipated to be supported.

Second Catalyst: The arrival of El Niño is favorable for power demand growth and precipitation improvement. The National Climate Center predicts that El Niño conditions will emerge in May this year, developing into a moderate or stronger El Niño event during the summer and autumn, lasting at least until the end of the year. The high temperatures caused by climate impacts are expected to drive increased electricity demand during the peak summer period, while precipitation in the Yangtze River basin and southern regions is likely to increase significantly. Starting from Q2 2026, energy storage indicators for large and medium-sized hydropower stations in southwestern China and high-quality water inflows are expected to improve markedly, further strengthening the performance certainty of "volume and price increases" for the hydropower sector and creating a positive resonance effect with thermal power's peak shaving and supply assurance capabilities.

Third Catalyst: Strengthened policies for computing-power synergy highlight the defensive attributes of the power sector during tech sector adjustments. In 2026, "computing-power synergy" was included for the first time in the government work report and the outline of the 15th Five-Year Plan, identified alongside ultra-large-scale intelligent computing clusters as national-level new infrastructure projects. Recently, the National Energy Administration and other departments issued the "Action Plan for Promoting the Mutual Empowerment of Artificial Intelligence and Energy," further detailing the development path for computing-power synergy and injecting strong policy dividends into the industry. Power enterprises with "green power direct connection" capabilities or leading positions in the eight major computing power hub nodes are undergoing value revaluation, driving continued active performance and leading gains for related stocks in the secondary market. Additionally, against the backdrop of periodic volatility in the technology sector, the defensive attributes of the power sector—characterized by high dividends and ample cash flow—have become more prominent.

Risk warnings: Policy support may fall short of expectations; power demand may decline; macroeconomic fluctuations may occur.