Profit growth cannot hide revenue decline; state-owned power enterprises' new energy investments are shifting from "focusing on scale" to "focusing on efficiency"

State-owned power generation enterprises are stabilizing profits by optimizing the structure of investment projects, improving efficiency through digital intelligence, and other measures.

Among the five major power generation groups, the four core listed companies under them—Huaneng International (600011.SH), Huaneng Power International (600027.SH), Datang Power (601991.SH), and China Power (02380.HK)—have completed disclosure of their 2025 annual reports.

Thanks to the cost dividend released by falling coal prices, most companies saw increases in net profit attributable to shareholders. However, with renewable energy comprehensively entering the market and the trend of expanding coverage of the spot market, the on-grid electricity tariff and electricity volume declined in tandem, causing all four companies’ operating revenue to contract year-on-year last year.

State-owned power enterprises are the main force in renewable energy installed capacity. During the “14th Five-Year Plan” period, their share in incremental wind and solar installed capacity is close to 60%. With adjustments to the supply-and-demand pattern in the coal market, the reform of power marketization advancing deeper, and the future 10-year target of 3.6 billion kilowatts of wind and solar installed capacity providing guidance, the investment logic and development strategy of state-owned power generation enterprises’ renewable energy projects are undergoing a transition. This is crucial to the development of the domestic power market, and also the core to solving the dual challenges of green, low-carbon development and steady growth in returns.

Profit increase without revenue increase

Based on comprehensive annual report data, in 2025, all four listed companies—Huaneng International, Huaneng Power International, China Power, and Datang Power—display the performance characteristic of “increased profits without increased revenue.”

Falling coal prices are the core support for these power generation companies’ net profit growth last year. In 2025, the annual average price of 5,500 kcal thermal coal at northern ports was approximately 700 yuan/ton, down sharply from 840 yuan/ton in 2024, driving a year-on-year decline in fuel costs for the four companies of 11% to 16%.

Under this favorable environment, the net profits attributable to shareholders of Huaneng International, Huaneng Power International, and Datang Power rose across the board. Among them, Huaneng International led with a profit scale of over 144 billion yuan, up 42% year-on-year; Datang Power achieved nearly 74 billion yuan in net profit attributable to shareholders, up about 64% year-on-year, with the leading growth rate.

However, the simultaneous decline in on-grid electricity volume and on-grid tariffs caused the four companies’ operating revenue to contract year-on-year across the board. Among them, Huaneng Power International, due to a clearly reduced on-grid electricity volume, saw last year’s revenue of 1,260 billion yuan, with a year-on-year decline of 11%, the largest among the four. China Power’s revenue was about 490 billion yuan, the smallest scale, and it was also the only company whose net profit attributable to shareholders declined year-on-year. The main reasons are that its renewable energy installed capacity accounts for a high proportion, the share of electricity from market-based trading is large, and it is therefore impacted more significantly by electricity marketization.

In response to performance pressure, China Power stated that full marketization of on-grid electricity tariffs for renewable energy lowers the average electricity price, resulting in profit shrinkage for the company’s new energy segment. Huaneng Power International also pointed out that reduced generation and declining electricity tariffs are the primary reasons for its revenue decline.

Pain points from power marketization

With large-scale growth in domestic renewable energy installed capacity and continued deepening of electricity market reforms, the traditional profit model of power generation enterprises is being comprehensively disrupted.

In 2025, multiple major power market policies were implemented. The “Notice on Deepening the Market-Oriented Reform of On-Grid Electricity Tariffs for Renewable Energy and Promoting High-Quality Development of Renewable Energy” (abbreviated as “Document No. 136”) will push all wind and solar electricity to enter electricity market trading; the “Notice on Comprehensively Accelerating the Construction of the Electricity Spot Market” and “Guidelines for Market Construction in Areas with Continuous Operation of the Electricity Spot Market,” among other spot market-related market rules, were released in sequence, clarifying the timeline for spot market construction. As of now, except for the Tibet and Jing-Jin-Tang regions, electricity spot markets have basically achieved full coverage across all provinces and regions in China.

Low-cost renewable energy entering the market in a concentrated manner, combined with intensified volatility in green electricity trading prices, directly drives down overall market electricity tariffs. In 2025, the on-grid electricity tariff decline for Huaneng International and Huaneng Power International reached 2.8% to 3.5%. At the same time, with wind and solar installed capacity growing rapidly, overall supply and demand in the power system has remained relatively loose, highlighting pressure on renewable energy absorption. According to data from the National New Energy Absorption Monitoring and Early Warning Center, in 2025 the full-year utilization rates of domestic wind and solar power generation were 94.3% and 94.8% respectively; during the “14th Five-Year Plan” period, it was the first time they fell below 95%.

“Last year, wind and solar utilization hours in a wider range of regions declined noticeably. In addition to areas such as Xinjiang and Gansu, where the decline in utilization hours for wind and solar exceeded 20% compared with the early period of the ‘14th Five-Year Plan,’ load centers such as northern Jiangsu also showed a comparatively clear risk of curtailment,” said Zhao Tianyi, a senior researcher on China’s energy transition at BloombergNEF (BNEF), at the BNEF Beijing Summit held recently. He pointed out that state-owned power generation enterprises have long been the main force in expanding renewable energy in China, but they are now facing dual pressures on project returns and operations resulting from a simultaneous decline in both renewable energy electricity volume and electricity tariffs.

According to BNEF statistics, over the past five years, the average debt ratio of nine listed central power enterprises, including Huaneng International and Datang Power, increased by 2 percentage points. In 2025, asset-liability ratios of companies such as Datang Power and China Three Gorges Energy (600905.SH) surpassed the 70% threshold, breaching the key regulatory red line of the State-owned Assets Supervision and Administration Commission (SASAC). “This not only increases the burden on groups to reduce leverage, but also limits the development space of listed companies,” Zhao Tianyi said.

The First Financial reporter noticed that multiple listed state-owned power generation enterprises released asset impairment announcements at the same time as their annual report disclosures. Huaneng International’s subsidiary Huaneng Shandong Sishui New Energy Co., Ltd. recognized asset impairment of 235 million yuan due to operating losses. Datang Power’s Heilongjiang subsidiary and five other pre-project assets, including the Datang Mulan wind power project under it, recognized impairment of 2.9722 million yuan for construction in progress because of policy adjustments, the project’s site selection not meeting conditions, and failure to meet the required yield targets.

From scale expansion to refined operations

In 2026, power generation enterprises will directly face threefold risks: fuel, renewable energy electricity volume, and electricity tariffs. The model of relying on coal price dividends to cover operating contradictions is no longer sustainable.

On the electricity tariff side, the “Basic Rules for the Medium- and Long-Term Power Market” officially took effect in March. In some regions, fixed time-of-use electricity tariffs were removed, and fluctuations in market-based time-of-use electricity tariffs intensified. The “Implementation Opinions of the State Council General Office on Improving the National Unified Power Market System,” issued in February, clarified that by 2030, all types of power sources and non-guaranteed users will fully enter the market; competition in the power market will be upgraded, and pressure on power generation enterprises to secure volume and stabilize prices will increase sharply. At the same time, with tightening imports of coal and stricter controls on domestic capacity, the coal market this year may shift toward a tight balance, and the fuel cost dividend will gradually fade.

On the electricity volume side, the industry expects power supply and demand to be relatively loose this year. Coupled with the 3.6 billion kilowatts wind and solar total installed capacity target by 2035, parts of the country may see structural excess electricity volume. Insufficient grid and peak-shaving/backup capacity may also raise wind and solar curtailment rates, compressing the returns of renewable energy projects.

“Under the trend of marketization, the stable return model for renewable energy projects that previously relied on subsidies and fixed electricity tariffs has been broken,” Zhao Tianyi noted. The investment logic for renewable energy is shifting from scale expansion to value investing. Power generation enterprises need to enhance professional operation capabilities and complete the restructuring of asset values more quickly.

To address the risk of electricity tariff declines, Zhao Tianyi suggested that power generation enterprises need to strictly control project cost management, focus on the quality and reliability of procured equipment, and also consider building electricity tariff forecasting models and incorporating them into project investment decision-making. In addition, Datang Power, Huaneng Power International, and others also said they will make active use of policies such as ancillary services and capacity compensation to improve generation returns. For example, in 2025 Huaneng International obtained net revenue of 1.36 billion yuan in ancillary service fees through peak-load and frequency modulation.

On project development, many state-owned power generation enterprises are shifting toward multi-energy complementary large base models that integrate wind, solar, hydro, thermal, and storage, or integrate water, wind, and solar in one. In December last year, China Power Investment Corporation (600795.SH) announced that its subsidiary plans to jointly invest in and operate the Dadu River Danba Hydropower Station project together with Contemporary Amperex Technology Co., Limited (300750.SZ) and others.

“Local consumption and nearby absorption are also a key development focus,” Zhao Tianyi added. State-owned developers can reduce commercial risks in wholesale markets by directly supplying industrial users. In its 2026 outlook, Datang Power proposed to build differentiated competitive advantages by relying on regional realities and advancing new business formats such as direct green power connection, digital/electrical computing coordination, and zero-carbon parks.

As renewable energy expands at scale and project forms continue to diversify, the explosive growth in power system equipment interconnection and monitoring data increases the complexity of end-side intelligent connectivity and raises operational and maintenance pressures. Digital intelligence at the power terminal has become a key factor in helping power generation enterprises improve efficiency.

The First Financial reporter learned from China Resources Power (00836.HK) that the company has recently released an IoT operation system “RunDian Hong” aimed at the generation side. This system has been developed and optimized in a targeted manner at the industry middleware layer and application layer, solving multiple issues in the field of power IoT.

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