Impact of Thermal Power Enterprise Peaking Market Transformation on Power Industry Investment Landscape

Based on the background information provided, I will systematically analyze the impact of thermal power enterprises’ transformation to the peaking market on the power industry investment landscape from multiple dimensions including industry changes, market mechanisms, and investment opportunities.

According to the data provided, the electricity market will show significant changes in 2026:

• Guangdong Market
  : Annual contracted electricity volume is 359.4 billion kWh, only 85.5% of the predicted 420 billion kWh
• Hubei Market
  : Annual contracted electricity volume is 86.5 billion kWh, also below expectations
• Policy Adjustment
  : The state has reduced the annual contract bottom line for thermal power from the original level to 60%

This change reflects the in-depth advancement of electricity marketization reform, with the proportion of annual bilateral negotiated electricity volume decreasing, meaning more electricity will be traded through market-oriented methods such as

.

Traditional thermal power, as a

, undertakes basic load supply with high and relatively stable generation hours. After transformation, thermal power enterprises will:

• **Shift from “electricity quantity supplier” to “capacity service provider”
• **Shift from “base-load power source” to “peaking power source”
• **Change revenue model from “electricity energy-based” to a diversified structure of “electricity energy + auxiliary services + capacity compensation”

This transformation is an inevitable trend under the background of global energy transition. With the increase in the proportion of renewable energy, the grid’s demand for

has increased sharply. Global clean energy investment is expected to reach $2.2 trillion in 2025 [1], with a large amount of funds invested in projects to improve grid flexibility.

• Auxiliary service market construction
  : Promote auxiliary service markets such as peaking, frequency modulation, and reserve nationwide
• Capacity compensation mechanism
  : Explore the establishment of capacity electricity prices or capacity markets to ensure reasonable returns for flexible power sources
• Renewable energy consumption pressure
  : High proportion of renewable energy grid connection requires more peaking resources

• Increased spot market volatility
  : Fluctuations in renewable energy output lead to increased spot price volatility, creating profit space for peaking services
• Rising annual contract risks
  : Fixed electricity quantity contracts face hedging risks when spot market prices fluctuate greatly
• Increased monthly bidding opportunities
  : Electricity sales companies reduce annual locking and shift to more flexible monthly markets

• Impact of coal price fluctuations
  : When serving as a base-load power source, fuel cost fluctuations have a large impact on profits
• Decline in utilization hours
  : Priority dispatching of renewable energy leads to a decline in thermal power generation hours
• Improvement of peaking returns
  : The compensation standard for auxiliary services is increased, making peaking services a new profit growth point

: Invest in large-capacity, high-efficiency base-load units, pursuing high utilization hours

:

• Focus investment on
  flexibility transformation
• Prioritize units with
  strong peaking capabilities
  (e.g., those with fast ramping capabilities)
• Heating units
  are favored (strong heat-electricity decoupling capability)

Thermal power flexibility transformation has become an important investment direction, mainly including:

• Boiler low-load stable combustion capability transformation
• Turbine variable working condition operation optimization
• Control system upgrade
  (improve fast response capability)
• Energy storage coupling system
  (e.g., combination with electrical energy storage, thermal energy storage)

It is expected that in the next 3-5 years, investment in flexibility transformation of existing thermal power units will increase significantly.

Thermal power transformation to peaking will催生 energy storage investment opportunities:

1. Independent energy storage stations
   : Participate in peaking and frequency modulation auxiliary services
2. Thermal-storage combination
   : Energy storage systems coupled with thermal power to improve overall peaking capability
3. Grid-side energy storage
   : Enhance regional grid peaking capability

The growth rate of global new energy storage installed capacity is expected to approach 50% in 2026 [2], with unprecedented investment enthusiasm.

• Virtual Power Plant (VPP)
  : Aggregate distributed resources through digital means to participate in peaking
• Load aggregators
  : Integrate demand-side response resources to provide peaking services
• Investment hotspots
  : Digital platforms, intelligent terminals, communication systems

Compared with coal power, gas power generation has:

• Faster startup
  (suitable for fast peaking)
• Higher ramping rate
• Lower carbon emissions

Although gas costs are higher, its flexibility advantages as a peaking power source are significant, and it is expected to receive more investment in areas with abundant gas resources.

To adapt to high-proportion renewable energy and flexible peaking needs, grid investment focuses on:

1. Smart grid construction
   • Intelligent dispatching system
   • Advanced metering infrastructure (AMI)
   • Distribution automation

2. Interconnection projects
   • Cross-regional transmission channels (enhance resource allocation capability)
   • Distribution network capacity expansion and transformation

3. Digital investment
   • Electricity market trading platform
   • Big data analysis system
   • Prediction and early warning system

Investment Field	Core Logic	Key Elements
Thermal Power Flexibility Transformation	Large demand for transformation of existing units, policy support	Technical solutions, transformation experience
Independent Energy Storage	Dual benefits from auxiliary service market + capacity leasing	Cost control, system integration capability
Virtual Power Plant	Rise of demand-side response market	Platform technology, resource aggregation capability
Gas Peaking Power Station	Fast peaking + carbon emission advantages	Gas supply, electricity price mechanism
Smart Grid Technology	Necessary for flexible dispatching	Technical advancement, grid relationships

:

• Focus on enterprises
  leading in flexibility transformation progress
• Focus on
  regional leaders with outstanding peaking capabilities
• Focus on enterprises with high proportions of
  coal-power joint operation
  or
  heating business

:

• Battery manufacturers
  (lithium batteries, flow batteries, etc.)
• System integrators
• BMS/EMS suppliers

:

• Power prediction technology providers
• Energy digital enterprises

1. Auxiliary service price fluctuations
   :
   • Peaking compensation standards may change with market supply and demand
   • Capacity compensation mechanism has not been fully established

2. Spot market risks
   :
   • Increased price volatility requires high trading capabilities
   • Need to establish a professional trading team

3. Policy uncertainty
   :
   • Uncertainty in the progress and path of electricity marketization reform
   • Capacity electricity price mechanism design has not been fully clarified

1. Cost recovery of flexibility transformation
   :
   • Uncertainty in matching transformation investment with returns
   • Economic feasibility of transforming some old units is questionable

2. Decline in energy storage costs
   :
   • Advances in energy storage technology may squeeze the space for thermal power peaking
   • Need to comprehensively consider the long-term competitive pattern

1. Unit life and reliability
   :
   • Frequent peaking operation may affect unit life
   • Need to balance peaking income and equipment loss

2. Fuel cost fluctuations
   :
   • Fluctuations in coal and natural gas prices affect the economics of peaking

• Leading spot market construction
  : Guangdong is one of the first batch of electricity spot market pilots in China
• Rapid increase in new energy proportion
  : Offshore wind power and photovoltaics develop rapidly
• Significant price fluctuations
  : Large peak-valley price differences, high peaking value
• Investment strategy
  : Focus on
  fast response units
  ,
  energy storage projects
  , and
  demand-side response

• High proportion of hydropower
  : Large hydropower bases such as the Three Gorges
• Strong peaking demand
  : Large differences in hydropower output between wet and dry seasons
• Receiving-end grid characteristics
  : High proportion of external power reception
• Investment strategy
  : Focus on
  pumped storage
  ,
  gas peaking
  , and
  cross-regional transmission

:

• Abundant wind and solar resources, large peaking demand
• Focus on
  thermal power flexibility transformation
  and
  supporting energy storage

:

• Load centers with high proportions of external power reception
• Focus on
  distributed energy
  ,
  demand-side response
  , and
  gas peaking

1. Gradual establishment of capacity market mechanism
   :
   • Capacity electricity prices or capacity markets will be launched in more provinces
   • Thermal power units will shift from “electricity income” to a ternary income structure of “capacity + electricity + auxiliary services”

2. Continuous decline in energy storage costs
   :
   • Advances in battery technology drive cost reduction
   • Energy storage will become one of the main peaking resources

3. Further differentiation of thermal power positioning
   :
   • Some old units will be decommissioned or converted to emergency backup
   • Advantageous units will become main peaking power sources through transformation

1. Diversification of flexibility resources
   :
   • Distributed resources such as energy storage, demand-side response, and electric vehicles participate in peaking
   • Virtual power plants become important market participants

2. Maturity of market mechanisms
   :
   • Coordinated development of spot markets, auxiliary service markets, and capacity markets
   • Price signals are clearer and more effective

3. Technological and business model innovation
   :
   • AI + energy internet optimize dispatching
   • New business models (e.g., energy as a service)

1. Focus on flexibility value
   : Investment decisions should take “flexibility” as the core evaluation indicator
2. Regional differentiated allocation
   : Different regional market characteristics determine investment priorities
3. Industrial chain collaborative layout
   : Consider the entire chain from power sources, energy storage, grids to digitalization

1. Grasp policy rhythm
   : Closely track the trends of electricity marketization reform policies
2. Optimize technical routes
   : Choose mature, reliable, and cost-controllable technical solutions
3. Build trading capabilities
   : Establish a professional electricity trading team to improve market-oriented operation capabilities
4. Risk management
   : Establish a sound system for risk identification, assessment, and control

The transformation of thermal power enterprises from base-load power sources to the peaking market is reshaping the power industry investment landscape:

1. Shift in investment focus
   : From traditional power generation capacity to flexibility adjustment resources
2. Reconstruction of market mechanisms
   : Annual contracts decline, monthly bidding and spot markets become more important
3. Value chain extension
   : From pure power generation to integrated service providers of “power generation + auxiliary services + capacity services”
4. Emergence of new technologies
   : Investment opportunities in emerging fields such as energy storage, virtual power plants, and demand-side response
5. Increased regional differentiation
   : Differences in regional resource endowments and market structures lead to differentiated investment strategies

This transformation is both a challenge and an opportunity. For investors, it is necessary to re-examine the value creation logic of the power industry, grasp emerging investment opportunities such as flexibility resources, digital technologies, and integrated energy services, while alerting to risks brought by market fluctuations, policy changes, and technological iteration.

In the next 5-10 years, the power industry investment landscape will continue to evolve deeply, and flexibility will become the core value creation element. Whoever can first build a flexible and efficient energy service system will occupy an advantageous position in the new round of industry transformation.

---

[1] Bloomberg - “Good Climate News 2025: Investments, Innovations and Policy” (https://www.bloomberg.com/news/articles/2025-12-24/good-climate-news-2025-investments-innovations-and-policy)

[2] CICC Report - “Next Year May Be the Turning Point for the PV Main Industry Chain” (https://hk.finance.yahoo.com/news/大行-中金-明年或是光伏主產業鏈逆轉之年-024645541.html)

[3] Wall Street Journal - “Why the ‘Broad Rise’ Trend of Energy Stocks Cannot Last Forever” (https://cn.wsj.com/articles/why-the-everyones-a-winner-energy-trade-cant-last-forever-c3679d4c)

[4] Investopedia - “Understanding World Electricity Trading” (https://www.investopedia.com/articles/investing/042115/understanding-world-electricity-trading.asp)

[5] Yahoo Finance - “Hongde Energy Joins Hands with Guoshuo to Form Energy Storage Platform, First Project Invests 3.5 Billion Yuan to Layout Taiwan Capacity Trading Market” (https://hk.finance.yahoo.com/news/泓德能源攜手國碩組儲能平台-首案投資35億元布局台灣容量交易市場-070318841.html)