CITIC Securities: The development of clean energy will be upgraded to a mandatory strategy, and the industry is expected to experience a Davis double play.

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CITIC Securities Research | Written by Lin Jie, Xu Wenrong, Wu Ziyi

In the short term, amid a significant rise in oil and gas prices, the new energy industry is expected to benefit from its flexible allocation attributes and improved economic advantages, leading to accelerated demand growth. In the medium to long term, China, Europe, and Asia-Pacific regions face shortages of oil and gas resources, exposing vulnerabilities in energy structures. The development of clean energy will shift from an optional low-carbon transition to an essential strategic move for energy security. Therefore, combining the trend of increasing demand for new energy with geopolitical conflicts and other event-driven catalysts, we anticipate the industry may experience a Davis double play.

▍ Geopolitical conflicts highlight the fragility of oil and gas supply structures, boosting the strategic value of new energy.

The intensification of military conflicts involving the US, Israel, and Iran has led to Iran blocking the Strait of Hormuz. According to EIA data, about 20% of global oil and gas supply has been impacted, causing a sharp rise in international oil and gas prices, which are expected to remain relatively high. China and Europe both face the dilemma of excessive dependence on fossil fuel imports, highlighting energy security risks. Against this backdrop, the flexible allocation and economic advantages of new energy further enhance its strategic importance. The energy transition is shifting from an optional path to a necessary strategy for ensuring energy security, with the industry poised for demand acceleration and valuation growth—Davis double play.

▍ Energy Storage: Overseas residential storage demand recovers, large-scale storage becomes the cornerstone of energy transition.

On the international front, considering the energy price surge caused by conflicts involving the US, Israel, and Iran, along with increased storage needs, and the potential for higher penetration of residential storage in Europe and other markets, demand for residential storage may replicate the 2022 market trend. Leading Chinese residential storage companies could see performance and valuation resonance. Domestically, “new energy + storage” has become a core solution for energy independence. As a key component in grid regulation, energy storage demand continues to grow with the increasing penetration of green electricity, further strengthening the industry’s supply chain and raw material independence, underpinning industry security.

▍ Photovoltaics: Short-term pressure but long-term positive trend driven by policy and cost advantages.

In the short term, regional instability in the Middle East disrupts China’s local capacity deployment. Long-term, China continues to ramp up policies like the “Sandstorm” project, while Europe introduces supportive policies to reduce energy dependence. The cost per kWh of “PV + storage” has fallen below that of natural gas. Under global energy security concerns, the PV industry is shifting from incremental additions to stock replacement, with domestic and international installation demand expected to remain strong, ushering in a phase of high-quality development.

▍ Wind Power: Demand growth coupled with accelerated overseas expansion highlights profitability advantages in the industry chain.

Thanks to cost and stability advantages, wind power may become the mainstream green electricity choice for domestic green fuels and power trading. Offshore wind, with Europe’s abundant resources, is accelerating construction, and domestic supply chain gaps are driving overseas orders. Companies producing offshore components like piles and cables are gaining market share abroad due to cost-effectiveness and supply security, with overseas gross margins significantly higher than domestic. Upgrades in wind turbine models and certification processes are speeding up international expansion. The increasing proportion of “dual offshore” projects is optimizing sales structure, and overall profitability in the industry continues to improve.

▍ Green Fuels: Policy and economic benefits resonate, unlocking a trillion-dollar market for oil substitution.

Green fuels align with global decarbonization goals and are crucial for national energy security, effectively reducing reliance on imported crude oil. As oil and gas prices remain high, the economic viability of green fuels improves significantly, potentially exceeding expectations in replacing fossil fuels. Domestic wind power companies and state-owned power enterprises are leading integrated projects for green hydrogen, ammonia, and alcohol. With falling green electricity costs and improved policies, the industry is expected to leap from a hundred-billion-yuan niche to a trillion-yuan main energy sector, with vast market potential.

▍ Risk Factors:

Risks include prolonged international logistics cycles and rising costs; demand growth in wind and solar falling short of expectations; price recovery delays for PV modules, wind turbines, and energy storage systems; sharp increases in raw material prices; further escalation of overseas trade barriers; slower-than-expected overseas market expansion and product delivery; underwhelming development of new PV technologies; and slower policy advancement for green fuels.

▍ Investment Strategies:

In the short term, amid soaring oil and gas prices, the new energy sector is expected to benefit from its flexible allocation and economic advantages, with demand accelerating. In the medium to long term, China, Europe, and Asia-Pacific face energy vulnerabilities due to high import dependence on oil and gas. The energy transition will shift from an optional low-carbon path to an essential strategy for energy security. Combining the trend of rising demand for new energy with geopolitical catalysts, we anticipate a Davis double play.

1. Energy Storage: Driven by urgent needs for renewable energy absorption, electricity shortages overseas, and AIDC storage, along with accelerated profit model improvements, storage installation demand will continue to grow rapidly.

2. Photovoltaics: Benefiting from stabilized prices and technological upgrades, the industry is poised for high-quality development.

3. Wind Power: Component profitability is expected to recover domestically, while product upgrades and expansion of “dual offshore” projects will drive both profitability and valuation improvements.

4. Green Fuels: Benefiting from soaring oil prices and intensified policies like carbon taxes, the industry is entering a fast development phase and may become a key alternative to oil and a vital component for energy security in the future.