Differences in Business Models of Various Power Generation Types and Valuation Analysis Under the Background of Reform

The business models of different power generation types differ significantly, mainly in terms of cost structure, cash flow characteristics, and risk exposure. Hydropower (taking Yangtze Power 600900.SS as an example) features high initial investment, low operating costs (no fuel expenses), and stable cash flows, hence having the highest net profit margin (39.46%) and return on equity (ROE) (15.30%) [0]. Nuclear power (taking China General Nuclear Power 1816.HK as an example) has extremely high initial investment and long construction cycles; although operating costs are low, it faces higher regulatory and decommissioning risks, leading to lower asset efficiency than hydropower [0]. Wind power (taking Goldwind Technology 2208.HK as an example) and PV (taking JinkoSolar JKS as an example) have lower initial costs and no fuel expenses, but their power output is volatile due to weather impacts; wind power has a higher price-to-earnings ratio (27.48x) due to growth expectations, while PV faces profitability challenges due to industry oversupply [0]. Thermal power (taking Huaneng International 600011.SS as an example) relies on fossil fuels; its operating costs are affected by commodity price fluctuations, and it faces carbon emission regulatory pressures, hence having the lowest valuation level [0].

Against the backdrop of power market reforms and grid parity, the competitive advantages of various power generation assets are being re-evaluated. According to Forbes data, the levelized cost of electricity (LCOE) for PV in 2023 was $55/MWh, far lower than nuclear power’s $110/MWh [1], enabling renewable energy sources like wind and PV to be competitive without subsidies. However, the volatility of wind and PV requires grid modernization and energy storage solutions, which will affect their long-term valuations. As a stable baseload resource, hydropower can complement variable renewable energy, hence still maintaining high value. The baseload capacity of nuclear power is crucial for grid stability, but high costs and long cycles remain major challenges. Thermal power continues to face valuation pressure due to fuel cost fluctuations and carbon regulatory risks [0][1].

1. Cash flow stability is the core driver of hydropower’s valuation premium
   : Hydropower’s high net profit margin and positive free cash flow (45.23B) give it a price-to-book ratio (P/B) of 3.06x, far higher than other power generation types, reflecting market recognition of its stable returns [0].
2. Wind power’s high valuation relies on growth expectations rather than current profitability
   : Goldwind Technology’s negative free cash flow (-5.35B) contrasts with its high P/E ratio of 27.48x, indicating the market is betting on its growth potential in the renewable energy transition [0].
3. PV’s grid parity advantage has not yet translated into profitability
   : Despite lower LCOE, oversupply in the PV industry has led to negative net profit margins for JinkoSolar, which is the main reason for its low valuation [0][1].
4. Thermal power’s valuation dilemma reflects long-term industry transformation pressure
   : A P/E ratio of 8.60x and a P/B ratio of 0.85x reflect market concerns about thermal power’s fuel cost fluctuations and carbon regulatory risks; its role as a baseload resource may gradually be replaced [0].

• Opportunities
  : Wind power and PV have huge growth potential under the grid parity background; hydropower still has investment value as a complementary resource [0][1].
• Risks
  : Oversupply in the PV industry leads to short-term profitability pressure; nuclear power faces high investment and regulatory risks; thermal power is affected by carbon regulations and fuel price fluctuations [0][1].
• Time Sensitivity
  : The progress of power market reforms and the development of energy storage technology will directly affect the re-evaluation of competitive advantages of various power generation assets [0].

Differences in business models of various power generation types lead to varying valuation levels and investment return characteristics. Against the current reform background, the competitive advantages of renewable energy (wind power, PV) are gradually emerging, but volatility and profitability issues need to be addressed; hydropower maintains stable value; nuclear power and thermal power face their respective challenges. Investors should pay attention to the cost structure, cash flow stability, and changes in policy environment of various assets to evaluate their long-term investment value.

[0] Jinling Analysis Database
[1] Forbes - Power Play: The Economics Of Nuclear Vs. Renewables (https://www.forbes.com/sites/dianneplummer/2025/02/12/power-play-the-economics-of-nuclear-vs-renewables/)