Compared with other types of power generation, hydropower has the advantages of low cost and stable profitability. Relying on the dam drop to generate electricity, it does not need fuel, and it is the entire upstream of the industrial chain, and the cost side is completely controllable. On the income side, it mainly depends on the supply of water, and the large-scale hydropower has strong regulation capacity, and the power generation is guaranteed by the priority grid policy, and the profit is stable.
Compared with other power generation companies, hydropower companies have significant advantages in terms of ROE in both absolute value and stability, with abundant and stable cash flow, net operating cash flow can exceed operating income by 50%, and at the same time, the dividend ratio is higher, and it is more recognized by the market as a value stock suitable for long-term investment.
Among all the hydropower companies in China, Yangtze River Power is undoubtedly the most eye-catching, with superior geographical location and high and stable dividends.
Yangtze Power has the permanent right to use the water resources of the Yangtze River, and operates and manages six hydropower stations of the Three Gorges, Gezhouba, Xiluodu, Xiangjiaba, Wudongde and Baihetan, all of which are located in the main stream of the Yangtze River, with a total installed capacity of 7,16950,000 kilowatts, accounting for about 173%；It has five of the world's top 10 hydropower stations, making it the world's largest hydropower company.
Since its listing in 2003, it has maintained a high proportion of dividends, and has paid a total of 1,638 cash dividends7.6 billion yuan, and also promised that the dividend ratio from 2021 to 2025 will not be less than 70%.
In April 2023, Yangtze Power completed the merger of Wudongde and Baihetan hydropower stations, adding 26.2 million kilowatts of installed capacity to the company, realizing the "six-reservoir joint commissioning", and the future growth of power generation is expected.
In addition to revenue growth, the depreciation policy of China's hydropower industry is extremely conservative, and the accounting depreciation period is far less than the actual service life, and hydropower companies generally have the problem of accounting profit distortionThe actual service life of the dam body of a large power station is more than 100 years, and the accounting depreciation period is mostly 40-60 years; The design service life of the turbine unit is mostly 30-40 years, and the accounting depreciation period is mostly 15-20 years (18 years for the Yangtze River Power Company). Because the depreciation cost of China's hydropower industry is generally inflated, the accounting profit is seriously underestimated.
From the perspective of small and medium-sized shareholders, by:The company's dividend ratio is linked to the accounting profit, and the reduction of depreciation is conducive to increasing the dividend amount. The first unit of the Three Gorges Power Station was put into operation in 2003, and it has exceeded the accounting depreciation period for more than 20 years. After the listing of Yangtze River Electric Power, the Three Gorges and other generating units have been injected one after another, and the depreciation of the generating units has gradually expired, and there will be marginal benefits brought by depreciation reduction almost every year in the future. Next, let's take a closer look.
1. Power generation and profit growth
In the first half of 2023, Yangtze Power completed the merger of Wudongde and Baihetan power stations, bringing 10.2 million kilowatts and 16 million kilowatts of new installed capacity to the company, respectively, and the controllable installed capacity increased from 4,559 year-on-year50,000 kilowatts to 7,17950,000 kilowatts, an increase of 575%。
According to the company's introduction, Wudongde Power Station has an installed capacity of 10.2 million kilowatts, 12 installed units, a designed annual utilization of 3,815 hours, and an annual power generation capacity of 38.9 billion kilowatt hours; Baihetan Power Station has an installed capacity of 16 million kilowatts, 16 installed units, a designed annual utilization of 4,006 hours, and an annual power generation capacity of 62.4 billion kilowatt hours.
From 2020 to 2022, the average feed-in tariff of Yangtze Power was 02649—0.2697 yuan kWh, the merger of Wudongde and Baihetan generating units, based on the design annual power generation capacity of 101.3 billion kWh, is expected to increase the annual revenue of about 27 billion yuan (268-273).
Wubai Hydropower Station will be merged in April 2023, assuming that in the 2023 semi-annual report data of Yangtze River Power, the adjustments to the 2022 annual data are all consolidated statements of Yunchuan Hydropower Development, which belongs to Wubai.
At the end of 2022, the fixed assets and projects under construction will be increased by 239.2 billion yuan, and the annual depreciation will be about 7.1 billion yuan based on 34 years of depreciation. Depreciation accounted for 60% of the operating costs, and the total operating costs were approximately RMB11.8 billion.
At the end of 2022, interest-bearing liabilities will be increased by 170 billion yuan, and the annual financial expenses will be about 5.1 billion yuan based on the cost of interest-bearing liabilities of 3%. Based on the proportion of other expenses in 3% of revenue, other expenses are about 800 million yuan per year.
To sum up, the merger of Wubai is expected to increase net profit by 9.2 billion yuan per year.
2. Reduction of depreciation margin
The fixed assets of hydropower operators are generally divided into several categories: water-retaining buildings, houses and buildings, machinery and equipment, transportation equipment, electronic and other equipment, and the corresponding depreciation period of different types of fixed assets is different, and most of them are straight-line depreciation method.
As of June 2023, Yangtze Power has 4422 fixed assets5.7 billion yuan, of which about 64% are water-retaining buildings, and the depreciation period of this part of the assets is 40-60 years, of which the Gezhouba Dam is 50 years, and the depreciation life of the Three Gorges Dam, Xiangjiaba Dam and Xiluodu Dam is 45 years. Due to the long depreciation time of the water-retaining dam, the depreciation of the earliest Gezhouba power station will not be completed until 2030, which will have little impact on profits in the short term.
About 19% of the fixed assets are machinery and equipment, i.e. generator sets, and compared with the retaining dam, the depreciation life of this part of the asset is shorter, 18 years, which is much lower than the actual service life of the unit. For example, the Gezhouba power station was put into operation in 1981, and its first generating unit is still in operation today. It can also extend the service life of the unit through low-cost retrofits, and the company has previously renovated some of Gezhouba's old generating units through the capacity expansion plan, which has further improved the service life of the unit.
Since the first unit of the Three Gorges Power Station was put into operation in 2003, the Three Gorges, Xiluodu and Xiangjiaba power stations have been put into operation and completed in the following ten years, specifically:
1) Three Gorges Power Station: The units were put into operation from 2003 to 2012, and have now entered the stage of depreciation maturity, and it is expected that all depreciation will expire by 2030;
2) Xiluodu and Xiangjiaba power stations: The units were put into operation from 2012 to 2014 and are expected to enter the stage of centralized depreciation from 2030 to 2032.
3) Wudongde and Baihetan power stations: The units will be put into operation from 2020 to 2022 and are expected to enter the stage of centralized depreciation from 2038 to 2040.
Overall, between 2024 and 2032, the depreciation of the unit component will be due every year. By 2026, about 1.2 billion profits can be released, accounting for 5% of the total profits in 202263%；By 2032, about 5 billion profits can be released, accounting for 23% of the total profits in 202243%。
3. Other increments
(1) Joint commissioning of six reservoirs and cascade scheduling
For hydropower operators, the wider the area of the river basin that can be controlled, the larger the total storage capacity under control, and the stronger the synergistic effect. By gradually impounding and storing floods and optimizing the dispatch of cascade hydropower stations, the downstream hydropower stations will receive additional water supply due to the release of water from the upstream power stations, increase the power generation capacity of the cascade power stations, reduce the fluctuation of power generation caused by the change of water supply, and give full play to the comprehensive benefits of the power station group.
Taking 2022 as an example, the water supply in the Yangtze River basin was about 25% year-on-year, but the annual power generation only decreased by 10% year-on-year92%。According to the company's public information, in the first half of 2023, it will continue to carry out in-depth joint optimization and dispatch of six reservoirs, with a cumulative water saving and power generation increase of nearly 3.5 billion kWh, and the equivalent availability coefficient of cascade power stations will increase by 2 compared with the same period last year55%。
After the Xiluodu and Xiangjiaba power stations were put into operation, the annual increase in power generation of the "four reservoir joint commissioning" exceeded 9 billion kilowatt hoursThe "six-reservoir joint commissioning" is expected to increase power generation by 10 billion kilowatt hours per year, according to 026 yuan kWh** calculation,The annual new income is about 2.6 billion yuan, and the annual net profit is about 10400 million yuan.
(2) Unit expansion
According to the company's 2022 performance meeting, it is planned to expand and increase the capacity on the basis of the existing hydropower stations, of which Gezhouba and Xiangjiaba power stations can increase the installed capacity by 801.44 million kilowatts through expansion, and Xiluodu Xiangjiaba can increase the installed capacity by 126.4 million kilowatts by nameplate adjustment, and the nameplate adjustment to increase the capacity is mainly due to the corresponding power generation capacity of the unit itself, but the rated installed capacity of the nameplate is less than the actual power generation capacity, and the power grid dispatches the company's hydropower station according to the rated capacity of the nameplateAfter the completion of the expansion and capacity increase of the above-mentioned hydropower station, it is expected to increase the company's installed hydropower capacity by 54%, with an annual increase in net profit of 223.6 billion yuan.
Overall, the injection of Wudongde and Hetan hydropower stations, the release of cascade dispatching, and the expansion of new units will increase the net profit of Yangtze River Power by a total of 12.4 billion yuan. At the same time, the depreciation of the units will expire one after another in the future, and it is expected to release the company's profits every year, and release more than 5 billion yuan by 2032. Yangtze Power has long adhered to a high proportion of dividends, which is more friendly to investors and can intervene in long-term holding on dips.
Risk Warning: Investment is risky, and you need to be cautious when entering the market. This article is published for informational purposes only and does not constitute investment advice.