Solar installations fall to a four-year low, while hot weather and AI power demand support electricity demand

Overview

This report is Deutsche Bank's monthly update on China's power sector, focusing on the decline in solar installations, improving electricity demand, the impact of weather on summer electricity usage, changes in the generation mix, power tariff and coal price pressure, and valuations of major power and solar companies. The report believes solar installations slowed significantly in May 2026 and fundamentals in the manufacturing chain remain weak; meanwhile, electricity demand continues to improve, AI-related data center power usage remains in strong growth, and hot weather may further lift summer electricity demand.

Core views

The report's core view is that the sector is showing clear divergence: the solar manufacturing chain is affected by slowing installations, falling polysilicon prices, and capacity additions, making a near-term inflection hard to see; power operators, by contrast, benefit from overall electricity demand growth, AI-related demand, and possible peak-summer demand. Deutsche Bank favors renewable energy operators such as China Resources Power and China Yangtze Power, but cuts CR Power's earnings forecasts and target price to reflect lower tariff assumptions and listing dilution; it maintains Sell on Tongwei, believing the polysilicon downcycle and high leverage constrain its transformation capability.

Analysis framework

The report combines monthly installation and electricity consumption data from the National Energy Administration, sector-level electricity consumption structure, generation by fuel type, weather forecasts, historical comparisons with extreme heat, tracking of power tariffs and coal prices, and DCF and relative valuation frameworks to assess changes in supply-demand, earnings, and valuations in China's power sector. At the company level, investment conclusions are formed mainly through earnings forecast revisions, WACC and terminal growth assumptions, target price changes, and peer valuation comparisons.

Methodology notes

• Industry supply-demand trackingMonthly installation, power generation, and electricity consumption analysis

  Uses solar and wind installations, total electricity consumption, sector-level electricity consumption, and generation by different power sources to judge supply-demand trends.

  This framework is used to identify whether solar installations are below historical levels, whether AI and residential electricity usage are providing demand support, and the generation momentum of thermal power, hydropower, wind power, solar power, and other sources.

• Valuation methodDCF valuation

  Derives the target price based on discounted future cash flows, WACC, and terminal growth rate.

  CR Power's target price uses 4% WACC and 0% terminal growth rate; Tongwei's target price uses 9% WACC and 0% terminal growth rate.

• Relative valuationP/E, P/B, ROE, and dividend yield comparison

  Compares the valuation, profitability, and dividend yields of solar manufacturers and clean energy operators through peer valuation tables.

  The report compares companies such as Tongwei, GCL Tech, LONGi, Xinyi Solar, China Yangtze Power, CR Power, and Longyuan Power to help assess valuation attractiveness and risk-reward.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Resources Power (0836.HK)

  One of Deutsche Bank's favored renewable energy operators in China; Buy maintained.

  Strengths

  The spin-off and A-share listing of China Resources New Energy is close to completion, and the expected IPO proceeds of about Rmb24bn could reduce CRP's net gearing by around 20 percentage points; after listing, the payout ratio is expected to gradually rise from 40% to 45%-50% over the next three years.

  Weaknesses

  FY26-28E EPS was cut by 22%-23%, mainly reflecting lower tariff assumptions and listing dilution; the new energy subsidiary guided for a 19%-30% year-on-year decline in 1H26 net profit.

  Comparison

  The valuation table shows CR Power at 9.5x 2026E P/E, 0.8x 2026E P/B, and 4.7% 2026E dividend yield, with the target price implying about 17% upside.

  Risks

  Uncertainty over tariff discounts for new renewable energy projects amid expanding market-based trading, as well as interest rates higher than expected.

• Tongwei (600438.SS)

  Deutsche Bank sees it as a key loser in the recent polysilicon downcycle and maintains Sell.

  Strengths

  If solar demand is better than expected, anti-involution measures in polysilicon or industry consolidation achieve breakthroughs, or polysilicon and battery prices are higher than expected, the stock may face upside risk.

  Weaknesses

  Cuts in polysilicon and battery ASP assumptions led to downward earnings revisions; the company's relatively high leverage may constrain its business transformation capability; its current P/B is relatively high versus peers.

  Comparison

  Target price cut from Rmb13.0 to Rmb10.0; current price CNY12.24 implies about 18% downside; the stock is down about 40% year-to-date, underperforming the CSI 300 by 48 percentage points and solar peers by 22 percentage points.

  Risks

  The main risk is that solar demand, pricing, cost control, or policy-driven consolidation progress is significantly better than Deutsche Bank expects.

• China Yangtze Power (600900.SS)

  Deutsche Bank stated it is positive on the company among China's renewable energy operators.

  Strengths

  The valuation table shows it has a large market capitalization, stable ROE, and dividend yield, with 2026E-2028E ROE all at 16.4%.

  Weaknesses

  The main body of the report does not elaborate on new company-level earnings revisions.

  Comparison

  The valuation table shows 17.4x 2026E P/E, 2.8x 2026E P/B, and 4.1% 2026E dividend yield, with the target price of Rmb36.00 implying about 35% upside to the current price of Rmb26.60.

  Risks

  The report did not provide detailed new risks; attention should be paid to hydropower inflows, regulated tariffs, and changes in market interest rates.

• Longyuan Power (0916.HK)

  Included in peer valuation comparisons as a clean energy operator.

  Strengths

  The valuation table shows the target price of HK$8.10 implies about 55% upside to the current price of HK$5.23, with a 2026E dividend yield of 3.9%.

  Weaknesses

  The report does not provide focused analysis on it in the main text.

  Comparison

  2026E P/E is 7.7x, 2026E P/B is 0.5x, and 2026E ROE is 6.4%.

  Risks

  Attention should be paid to wind resources, wind and solar curtailment, tariff discounts, and changes in project returns.

• China's solar manufacturing industry chain

  The report believes it will remain under pressure in July-August, and recovery will require waiting for seasonal demand or policy progress.

  Strengths

  If seasonal demand improves in 4Q26 and tighter energy-efficiency standards are implemented, industry expectations may improve.

  Weaknesses

  5M26 installations were at a four-year low, polysilicon prices fell to Rmb33/kg, and output rose in the short term, further weakening industry fundamentals.

  Comparison

  Compared with power operators, the earnings and valuations of solar manufacturers are more sensitive to the price cycle.

  Risks

  There is uncertainty over the pace of policy execution, the extent of demand improvement, the release of polysilicon supply, and the effectiveness of industry consolidation.

Key data

• New solar installations in May 20268.7GW, -9% month-on-month, -91% year-on-yearThe sharp year-on-year decline was mainly due to the high base from the installation rush in May 2025.
• 5M26 solar installations versus history25% below 5M24 and 3% below 5M23Still a four-year low after excluding the high-base distortion.
• China electricity consumption in May 2026+6.9% year-on-yearFurther accelerated from +6.0% in April 2026.
• Electricity consumption by internet and related services+45.4% year-on-year in May 2026Continued to accelerate from +42.8% in April, reflecting strong demand from AI and data centers.
• China power generation in May 2026784.0 billion kWh, +4.2% year-on-yearAccelerated from +2.6% in April; hydropower +13.0% year-on-year, thermal power +2.1% year-on-year.
• Solar power generation in May 2026+12.1% year-on-yearImproved from +7.1% in April.
• China solar installation forecast for 2026215GW, -32% year-on-yearDeutsche Bank expects full-year installation demand to fall significantly from 2025.
• New wind installations in May 20263.8GW, -86% year-on-yearDeutsche Bank expects new wind installations in China to reach 110GW and 120GW in 2026E and 2027E, respectively.
• Market-based thermal power tariffAverage down 9%-13% year-on-year in 1H26Despite the recent rebound in coal prices, market-based power tariffs remain weak.
• Qinhuangdao 5,500 kcal thermal coal spot priceUp 27% year-to-date in 2026; 1H26 average price up 10% year-on-yearRising coal prices put pressure on thermal power profitability.
• CR Power target price and ratingBuy, target price HK$21.50, current price HKD18.30, about 17% upsideTarget price cut from HK$23.0; FY26-28E EPS cut by 22%-23%.
• Tongwei target price and ratingSell, target price CNY10.00, current price CNY12.24, about 18% downsideTarget price cut from Rmb13.0; FY26E/FY27E net loss forecasts widened by 10% from previous estimates, and FY28E EPS cut by 25%.

Impact & implications

At the sector level, the solar manufacturing chain still faces pressure from slowing installations, polysilicon prices nearing the bottom but rising supply, and policy support not yet materializing; near-term earnings recovery depends on seasonal demand improvement in 4Q26 or progress in anti-involution policies. Power operators are supported by electricity demand growth, AI infrastructure power consumption, and summer cooling demand, but tariff discounts, rising coal prices, and renewable energy absorption pressure will limit earnings elasticity. From an investment perspective, the report is more inclined toward power operators with higher visibility on cash flow and dividends, while remaining cautious on highly leveraged solar manufacturers in a price downcycle.

Risks

• If solar demand continues to be weaker than expected, polysilicon and battery prices may decline further, delaying earnings recovery in the manufacturing chain.
• If tighter energy-efficiency standards, anti-involution measures, or industry consolidation policies continue to show no substantive progress, pressure on the solar industry chain may persist.
• If July and summer weather is less hot than expected, the upside for residential cooling demand and overall electricity consumption growth may be limited.
• Tariff discounts from the expansion of market-based trading may reduce returns on new renewable energy projects.
• Rising coal prices combined with falling power tariffs may squeeze profits of thermal power and integrated power companies.
• CR Power faces risks including short-term profit decline at its new energy subsidiary, wind and solar curtailment, reduced subsidy income, and higher-than-expected interest rates.
• If Tongwei's demand, pricing, cost control, or industry consolidation are significantly better than expected, this may pose upside risk to the bearish view.

What to watch

• Follow-up monthly solar and wind installation data from the National Energy Administration, especially whether July-August remains weak.
• Whether polysilicon prices fall below or approach Deutsche Bank's estimated floor of around Rmb30/kg, and the pace of new output releases.
• Whether executable progress emerges on energy-efficiency standards, anti-involution measures, and industry consolidation policies for the solar manufacturing chain.
• Temperatures, rainfall, and residential electricity consumption growth in July-August, and whether they approach or fall clearly below the extreme heat period of 2022.
• Whether electricity demand growth from AI and internet data services can maintain high growth above 40%.
• The progress of the A-share listing of China Resources New Energy under CR Power, fundraising size, magnitude of net gearing reduction, and the pace of dividend payout ratio increases.
• The impact of market-based tariff discounts, coal price trends, and interest rate changes on power operators' earnings.