2021 marks the beginning year of 14th Five-year Plan (2021-25) in China, and major policies for the utilities and renewables sector are likely to be set this year. We believe energy mix improvement would be the key driver behind all subsector demand-supply changes, with clean energy the key winner. Based on our projection, renewables (solar and wind) as a percentage of China’s energy mix (~5% in 2020E) is set to double in 14th FYP (10%) and triple in 15th FYP (16%). Natural gas remains a clean energy solution and should expand further in the medium term (13% by 2030E per CSe), while other traditional fuel types (coal-fired power, etc.) may see continuing drops in % contributions.

A higher renewable contribution not only helps with de-carbonisation but is also important for China in terms of energy security (reducing reliance on imported fossil fuels). With solar currently at grid parity, we raise China solar demand to 103GW per year on average in 14th FYP (previous forecast: 67GW), meaningfully higher than 42GW per year in the 13th FYP. We also increase the wind demand forecast to 43GW per year (vs. 35GW previously) in the 14th FYP. Unlike consensus, we believe China is set to overachieve its non-fossil fuel energy mix target by 2030E (28% per CSe vs the official target of 25%). To facilitate more renewable power, power grid upgrades and energy storage are important.

We raise earnings/TPs for most clean energy names that we cover, with key rating upgrades including Longi (from Neutral to OUTPERFORM), TBEA (from Underperform to OUTPERFORM), Yangtze Power (from Neutral to OUTPERFORM ), GCL (from Underperform to NEUTRAL), and GCLNE (from Underperform to NEUTRAL). Our top picks are Daqo, Longi, Xinyi Solar, Longyuan Power, Goldwind, and Nari Tech, which we see as the most high-quality names in the solar, wind and grid sectors. Sabrina Shao assumes coverage of the China transmission and distribution (T&D) sector. In this report,we also leverage CS’ Quantitative and Systematic Strategy team’s top-down screening to create a broad-based Sustainable China basket, set to benefit from China’s ongoing shift towards a more sustainable future.