J P M O R G A N Asia Pacific Equity Research 20 September 2025 China ESS J.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) Limited Expert call takes: Tender strength and policy support to drive a V-shaped recovery We hosted an ESS expert from the CNESA (China Energy Storage Alliance) as part of our Transition Talks series. Key takes: 1) Despite a cliff-fall in ESS installations post May, tender activities are holding up due to local government incentive programs; 2) >10 province ...

Group 1 - The core viewpoint of the news highlights the positive outlook for global energy storage systems (ESS), with Citigroup raising its demand forecast from 177.8 GWh in 2024 to an estimated 360.2 GWh by 2027, reflecting a compound annual growth rate of 26.5% over three years. The forecast for 2025 indicates a year-on-year growth of 37% to 243.7 GWh [1] - Foreign investment is optimistic about the development of energy storage in China, driven by increasing market demand, accelerated electricity needs in the U.S., a larger storage market in Europe, and deployment in emerging markets to address power shortages [1] Group 2 - The ChiNext New Energy ETF (159368) is the first ETF in the market tracking the ChiNext New Energy Index, covering various sectors including batteries and photovoltaics. It has the highest flexibility with a maximum increase of 20 cm, the lowest fee rate at a total of 0.2% for management and custody fees, and the largest scale with 770 million yuan as of September 22, 2025 [2] - The ETF has a significant storage component of 51% and solid-state battery content of 23.6%, aligning with current market trends [2]

Investment Rating - The report maintains an "Outperform" rating for the industry, indicating expectations for the industry to perform better than the market in the next six months [4]. Core Insights - The report highlights a turning point in the growth of new energy installations, with a significant increase in installed capacity in the first half of 2025, totaling 293 million kilowatts, a year-on-year increase of 140.5 million kilowatts. Wind and solar power installations saw year-on-year growth of 98.9% and 107.1%, respectively, accounting for 64.4% and 76.6% of the total new installations in 2024 [1][9][10]. - The development of energy storage is becoming clearer, with 2025 identified as a year of value reconstruction for the storage industry, driven by both policy and market changes. The introduction of differentiated capacity pricing mechanisms in Gansu and Guangdong emphasizes the value of regulatory power sources [2][17][18]. Summary by Sections New Energy Installation Growth - The report notes that the new energy installation growth is at a critical juncture, with policies transitioning from reliance on government support to market-driven mechanisms. The "430" and "531" policies are pivotal in this shift, promoting a more mature electricity market and enhancing the capacity for energy consumption [1][13][14]. Energy Storage Development - The energy storage sector is projected to see a significant increase in installed capacity, reaching 73.76 million kilowatts by the end of 2024, a 130% increase from 2023. By mid-2025, this is expected to rise to 94.91 million kilowatts. The average utilization hours for energy storage are also expected to improve significantly, indicating a shift towards market competitiveness [2][20][24]. Regulatory Changes and Market Dynamics - The introduction of capacity pricing mechanisms in Gansu and Guangdong is a key development, allowing coal and gas power plants to have a more significant role in the energy market. This change is expected to enhance the operational flexibility of traditional power sources and support the integration of renewable energy [17][19][18]. - The report emphasizes that the energy sector is moving towards a collaborative model where new energy and regulatory power sources work together to meet the increasing demand for system flexibility as renewable energy penetration rises [25][27].

Core Viewpoint - The article highlights the increasing electricity demand across various regions in China as summer approaches, prompting power companies to implement multiple strategies to ensure stable electricity supply during peak periods [2][5][10]. Group 1: Electricity Demand and Historical Data - The National Climate Center predicts that by 2025, most regions in China will experience higher temperatures than usual, leading to sustained high electricity demand [3]. - On July 4, the national electricity load reached a record high of 1.465 billion kilowatts, an increase of 0.14 billion kilowatts compared to last year's peak [3]. - Jiangsu's electricity load hit a historical high of 14,996 megawatts on July 3, while Hubei's load reached 5,456.8 megawatts on July 4, marking a 1.02% increase from the previous year's peak [4]. Group 2: Infrastructure Development and Upgrades - Power companies are accelerating key project constructions to enhance grid stability and capacity, with Sichuan completing 13 major projects to bolster its electricity supply [5]. - The Sichuan Panxi 500 kV grid optimization project, which enhances transmission capacity by 2.5 million kilowatts, is set to be operational soon [5]. - In Zhejiang, the completion of nine ultra-high voltage projects has significantly improved the grid's supply capacity, with expectations of peak loads increasing by approximately 1 million kilowatts year-on-year [6]. Group 3: Operational Management and Emergency Preparedness - Power companies are enhancing operational management of key transmission channels and substations, implementing specialized inspections to ensure equipment safety [7]. - Fujian's power company has initiated 425 disaster prevention projects to improve grid resilience against extreme weather [11]. - The use of smart technologies is being prioritized to improve grid regulation capabilities, with Fujian developing an AI-based infrared image screening module to enhance inspection efficiency [8]. Group 4: User Service Enhancements - Power companies are taking measures to improve user service levels during peak demand, including optimizing maintenance operations to minimize outages [10]. - In Zhejiang, over 1,300 micro-grid service points have been established to provide tailored services to businesses, promoting energy efficiency through time-of-use pricing [10]. - Fujian's implementation of AI technology has significantly reduced the workload for manual inspections, enhancing operational efficiency [10].