Huatai Securities: Reassessment of environmental value will unfold along three main lines, focusing on the green fuel sector

Huatai Securities research report indicates that the market consensus expects NDC (Nationally Determined Contribution) to be a long-term concept, with an oversupply of green certificates making it difficult for prices to rise, and green power operators are merely “debt-like” defensive assets. Huatai Securities believes: 1. The countdown to carbon peak from 2028 to 2030 has only 2-4 years left, and NDC may become a hard constraint in annual assessments; 2. The transfer of mechanism electricity and mismatched validity periods have led to a shortage of newly deliverable certificates, with the proportion of new certificate transactions reaching 84% in February 2026, reversing the supply-demand pattern; 3. The market has not priced the “growth attributes” of green power operators, and the visibility of green certificate revenues is expected to drive the valuation center of A/H shares in green power upward. The re-evaluation of environmental value will unfold along three main lines, benefiting green power operators and leading energy-consuming companies directly connected to green power, with a focus on the green fuel sector.

The full text is as follows

Huatai | Public Utility Environmental Depth: Re-evaluating Green Power Value from the Perspectives of Energy Security and Emission Reduction Constraints

Unlike the market: The market consensus expects NDC to be a long-term concept, with an oversupply of green certificates making it difficult for prices to rise, and green power operators are merely “debt-like” defensive assets (Hong Kong stocks only 0.6-0.9xPB-LF). We believe: 1) The countdown to carbon peak from 2028 to 2030 has only 2-4 years left, and NDC may become a hard constraint in annual assessments; 2) The transfer of mechanism electricity and mismatched validity periods have led to a shortage of newly deliverable certificates, with the proportion of new certificate transactions reaching 84% in February 2026, reversing the supply-demand pattern; 3) The market has not priced the “growth attributes” of green power operators, and the visibility of green certificate revenues is expected to drive the valuation center of A/H shares in green power upward. We believe the re-evaluation of environmental value will unfold along three main lines, benefiting green power operators and leading energy-consuming companies directly connected to green power, with a focus on the green fuel sector.

Core Views

With the hard constraints of the 2035 NDC (Nationally Determined Contribution) being implemented, China’s climate action is shifting from “intensity control” to “total emission reduction,” and environmental value pricing is entering a new era. According to our calculations, the reversal of the supply-demand pattern will push the central price of green certificates to more than double the current level, significantly enhancing the revenue per kilowatt-hour of green power operators and project returns, driving the reconstruction of the sector’s valuation system, while also bringing new opportunities for the transformation of high-energy-consuming industries and carbon service-related sectors. Recommendations: 1) Underestimated Hong Kong green power operators, which will fully benefit from profit increase and valuation repair under the linkage of electricity-certificates-carbon; 2) Leading high-energy-consuming companies with integrated green power capabilities, which can effectively avoid carbon cost erosion and export compliance risks; 3) Green fuels benefiting from the upgrading of international supply chain carbon barriers and domestic renewable energy substitution demand, possessing policy rigidity and resource barrier moats.

The NDC hard constraints anchor the carbon peak node, with a clear bottom line for green power demand by 2035.

We translate the 2035 NDC target into quantifiable short-term constraints. We calculate that domestic carbon emissions will peak between 2028 and 2030, corresponding to a non-fossil energy consumption ratio of no less than 30% by 2035. Based on electricity volume back-calculation, the green power demand by 2035 will be no less than 6.59 trillion kilowatt-hours, with an average annual increase of 415 million kilowatts in wind and solar installations from 2026 to 2035, significantly higher than the average of 261 million kilowatts during the “14th Five-Year Plan.” Six major high-energy-consuming industries and data centers face clear hard requirements for green power consumption ratios, forming the core support for green certificate demand. We expect green certificate demand to surge to 3-3.3 billion by 2030, with clear demand growth.

Policies reshape the supply-demand structure of green certificates, with the scarcity of tradable green certificates continuing to stand out.

We believe that policies have reshaped the supply-demand structure: Document No. 136 in 2025 clearly states that the mechanism electricity corresponding to green certificates will no longer generate repeated revenue when transferred to provincial accounts, leading to a contraction in the supply of tradable green certificates; coupled with a two-year validity constraint, the price of nearing expiry green certificates (produced in 2024) fell to 1.21 yuan each in February 2026, while the price of new certificates (produced in 2025) rebounded to 5.90 yuan each, achieving a premium of 380% between new and old certificates. Document No. 262 includes six major high-energy-consuming industries and data centers in mandatory consumption assessments, shifting green certificate demand from voluntary consumption to rigid assessments, with the tradable rate expected to concentrate from the current 64.2% towards quality projects.

The electricity-certificates-carbon collaborative mechanism is taking shape, with rising carbon prices driving the re-evaluation of green certificate value.

The relationship between domestic carbon prices and green certificate prices has strengthened. We estimate that for every 10 yuan increase in carbon prices per ton, the theoretical value of green certificates increases by 1.5-2.0 yuan each. As the national carbon market expands to key industries such as steel, cement, and aluminum smelting, the coverage of emissions will significantly increase. We expect carbon prices to rise to 100 yuan per ton in 2027-2028, corresponding to a theoretical value of 12-15 yuan per green certificate, an increase of 103%-154% compared to the price in February 2026. The visibility of green certificate revenues will drive the environmental value of new energy from “implicit subsidies” to “explicit pricing,” opening up space for the re-evaluation of green power sector values.

Differences from market views

The market consensus expects NDC to be a long-term concept, with an oversupply of green certificates making it difficult for prices to rise, and green power operators are merely “debt-like” defensive assets (Hong Kong stocks only 0.6-0.9xPB-LF). We believe: 1) The countdown to carbon peak from 2028 to 2030 has only 2-4 years left, and NDC may become a hard constraint in annual assessments; 2) The transfer of mechanism electricity and mismatched validity periods have led to a shortage of newly deliverable certificates, with the proportion of new certificate transactions reaching 84% in February 2026, reversing the supply-demand pattern; 3) The market has not priced the “growth attributes” of green power operators, and the visibility of green certificate revenues is expected to drive the valuation center of A/H shares in green power upward.

Benefits for green power operators and leading energy-consuming companies directly connected to green power

We believe the re-evaluation of environmental value will unfold along three main lines: 1) Benefiting from profit increase and valuation system switching under the electricity-certificates-carbon linkage; 2) Leading high-energy-consuming companies with integrated green power capabilities, where the self-sufficiency rate of green power will become a core competitive advantage, locking in low-cost green power to avoid carbon cost erosion and CBAM export compliance risks; 3) High expectation difference tracks bound by total emission reduction policies, focusing on the green fuel sector.

Risk Warning: Policy implementation may fall short of expectations; risk of declining green power electricity prices; carbon price volatility risk; risk of substitution by new energy technologies.

(Source: Interface News)