Huadian fuxin (00816.hk), a listed clean energy company under huadian group, announced on June 10 that its total power generation in May was 4.5812 million megawatt-hours, up 19.3% from the same period last year. Among them, hydropower generation was 1,063,700 megawatt hours, an increase of 193.1 percent over 2018.

On the same day, the share price of Yangtze power (600900.sh), a listed subsidiary of three gorges group, hit a record high, with the highest price of 18.3 yuan in the intraday trading of the world's largest hydropower company, which makes more money than the world's largest bank. Based on that day's closing price, the total market value of Yangtze power is as high as 394.9 billion yuan.

In fact, as early as last year, hydropower recovery has emerged.

China's electric power industry released its annual development report 2019 on June 14. According to the report, in 2018, China's total generating capacity reached 6,994.7 billion kilowatt-hours, of which 1,222.1 billion kilowatt-hours were generated by hydropower, an increase of 3.1 percent over the previous year.

In April, huaneng hydropower (600025.sh), China's second largest listed hydropower company, released its 2018 annual report and 2019 quarterly report. Its revenue in 2018 was 15.5 billion yuan, up 20.8% year on year. Its net profit was 5.8 billion yuan, up 165% year on year. In the first quarter of 2019 (2019Q1), the operating revenue was 4.44 billion yuan, with a year-on-year growth of 49.7%. Its net profit was 800 million yuan, up 137% year on year.

Huaneng hydropower attributed the growth in 2018 to the production of units and the improvement of supply and demand. Its annual output in 2018 increased by 11.6% year-on-year. In addition, due to the opening of the power delivery channel, the actual settlement price in 2018 increased by 0.015 yuan/KWH compared with the same period last year. Driven by volume and price, net profit of the company was 5.8 billion yuan, up 165% year on year.

The revenue of hydropower enterprises is mainly determined by electricity generation and on-grid electricity price, which depends on installed capacity and utilization hours. Therefore, on the premise of not considering the cost of new installed capacity construction, the decisive factors of the performance growth of hydropower companies are installed capacity and utilization hours.

Take advantage of hours to improve

Hydropower belongs to renewable energy, clean and environmental protection. In 2018, hydropower generation accounted for 17.6 percent of China's total power generation, and installed power accounted for 18.5 percent, second only to thermal power.

The cost of hydropower mainly comes from the construction cost in the early stage, but the cost after the operation is relatively low, mainly from depreciation and financial expenses. At present, hydropower is almost all the power generation of the lowest cost, low cost also makes the current average hydropower on-grid price is the lowest of all power generation.

From the perspective of stability, the utilization hours of hydropower are better than that of wind power and photovoltaic power. Although hydropower is affected by the uncertainty of incoming water amount, it is still a more stable power generation choice compared with wind power and photovoltaic power. It has peak shaving performance and is second only to thermal power in peak shaving.

During the 12th five-year plan period, the country accelerated the pace of energy restructuring, energy conservation and emission reduction, and the overall trend of hydropower investment accelerated. With the hydropower stations in the lower reaches of the yalong river being put into operation together with the xiangjiaba and xiluodu hydropower stations, most of the listed hydropower companies in China have completed the development of hydropower stations in their respective basins.

According to data from the China electricity federation, in 2018, China added 127.85 million kilowatts of new power generation capacity (officially put into operation), 2.34 million kilowatts less than the previous year. Among them, hydropower is 8.59 million kilowatts (including 1.3 million kilowatts of pumped storage capacity), which is the lowest number of new hydropower production since 2003.

Under the current situation that the growth rate of new hydropower installations is slowing down, the number of hours of hydropower utilization has become a major factor affecting the online power and the profits of hydropower companies.

At the end of April, the National Energy Administration released the figures for the first quarter of 2019. Data shows that in the first quarter, there was basically no abandoned water in China. The average utilization hours of hydropower nationwide were 691 hours, an increase of 74 hours.

The increase in utilization hours is evident in electricity generation. In the first quarter of 2019, hydropower was 215.9 billion kilowatt-hours, up 12 percent year-on-year and 9.4 percentage points higher than the same period last year.

Hydropower base in our country are mainly concentrated in the southwest region, because of the "twelfth five-year" period, the more concentrated production large hydropower projects, hydropower investment planning completed, into the "new normal" economic growth at the same time, the power consumption growth slowed, since 2014, represented by yunnan province in the southwest, the serious phenomenon of abandoned water, water and electricity use hours began to reduce.

In order to solve the problem of surplus hydropower consumption in southwest China, the state guides the problem of "abandoning water" through the reform of electricity market and the policy of "sending electricity from the west to the east". For example, in March 2015, the State Council issued several opinions on further deepening the reform of the electric power system, requiring the formation mechanism of electricity price to be straightened out and the market-based trading mechanism to be improved. In November of the same year, the National Development and Reform Commission and the energy administration issued the reply on agreeing to carry out comprehensive pilot reform of the electric power system in yunnan and guizhou, and agreed to carry out comprehensive pilot reform of the electric power system in the two provinces. In October 2017, the National Development and Reform Commission and the energy industry jointly issued a notice on promoting the consumption of hydropower in southwest China, calling for accelerating the construction of hydropower delivery channels and encouraging surplus hydropower to increase the proportion of power transmission from the west to the east by participating in market bidding in the areas affected by electricity.

As a result, the utilization hours of water and electricity have been effectively improved in the past two years. In 2018, the average utilization hours of hydropower equipment nationwide were 3,613 hours, a slight increase from 2017. In the first quarter of 2019, the number of utilized hours increased by 74 hours.

In addition to the absorption problem, the main factor that affects the utilization hours is the amount of incoming water.

Increase of incoming water

According to the change of water inflow, the four seasons of the year can be divided according to the high water period, flat water period and dry water period of hydropower. Q1 is dry water period, Q2 and Q4 are flat water period and Q3 is high water period. Generally, the electricity generated in june-december accounts for about 65% of the annual electricity generated (2013-2018 historical average), among which, the electricity generated in june-october is significantly higher than that in other months.

It can be seen that water inflow in flood season has a significant impact on utilization hours and power generation.

For example, the flood season in the second half of 2016 was relatively weak, and the inflow of water from major river basins in China was relatively weak in the first half of 2017. In 2017, the utilization hours decreased by 22 hours year-on-year to 3,597 hours, only 7 hours more than the 3,590 hours in 2015 when a large amount of water was abandoned.

Then, the flood season began in 2017, and incoming water changed from dry to abundant. In July 2017, the year-on-year growth rate of hydropower generation in the same month became positive for the first time in this year, followed by the year-on-year growth trend of electricity in August to December.

The same is true in 2018. The water inflow in the first four months was relatively weak, but the water inflow in the flood season was relatively good. The utilization hours of the whole year were 3,607, with a year-on-year growth of 10 hours, leading to a year-on-year growth of 3.3% in hydropower generation in 2018.

After entering 2019, water inflow still performs well. In the first quarter, utilization hours increased significantly compared with the same period last year, resulting in the continuous improvement of performance of hydropower companies. As huaneng hydropower's announcement shows, in the first quarter of 2019, the inflow of water into the lancang river basin continued to be more abundant, generating capacity increased by 43.3% year on year, and return to the mother net profit increased by 137% year on year.

The year 2019 has been identified by the national climate center as an "el nino" year, which refers to a large area of unusually warm water in the eastern and central equatorial Pacific. El nino phenomenon causes abnormal weather and climate changes through the complex interaction between ocean and atmosphere, which leads to the occurrence of extreme weather and climate disasters such as rainstorm, flood and strong typhoon.

According to the research, the probability of extreme weather and climate events is increased due to the influence of el nino events of medium or above intensity and long duration, which shows a trend of "early start of flood season, heavy precipitation in pre-flood season, heavy dragon boat water and high probability of strong typhoon". Since April, rainfall in the southern coastal areas has increased significantly.

In April, China's hydropower generation grew 18.2 percent year-on-year, from negative to positive.

The inflow continued to improve in May, with the average inflow of the three gorges reservoir reaching 13,648 cubic meters per second, higher than the same period last year.

In June, all basins entered a period of high water supply. In addition to the el nino phenomenon, the inflow of water will continue to increase due to increased rainfall, and the number of generating hours will continue to increase, which is expected to drive the hydropower generation to maintain a high growth rate.

In addition, with renewable power given guarantee mechanism, provincial administrative regions will set the renewable power weights given responsibility, hydropower and other renewable energy power given guarantee mechanism to promote substance and is expected to make sichuan, yunnan and other regions to refuse to further improve water conditions, the relevant hydropower companies will continue to benefit from.