In 2011, coal prices were high, thermal power losses, investment in thermal power declined, hydropower investment rose sharply, and investment in nuclear power grew steadily. The increase in coal prices and the expected restart of nuclear power have brought investment opportunities for power generation equipment companies.

The grid investment will be tilted towards rural power grids and distribution networks. Energy-saving distribution transformers and medium-voltage switchgear companies will benefit.

The grid investment rose slightly and the power supply investment structure changed. Although the grid investment in 2012 was only slightly higher than that in 11 years, the start-up volume will increase significantly, and the launch of high voltage level transmission projects will be higher than in 2011. In 2011, the investment in power sources rose steadily and the power supply structure was adjusted. In December 11 thermal power investment was only 2.5 billion yuan, a year-on-year decrease of 87.5%, while hydropower investment reached 27.2 billion yuan, an increase of 140% over the same period of last year.

With the increase in thermal power prices, thermal power investment may recover in 2012, while hydropower investment will remain high.

Thermal power equipment delivered smoothly and hydropower grew faster. From the statistical data, the growth of thermal power equipment delivery in 2011 was relatively stable. In 2011, thermal power installed capacity increased by 7.9%, and the delivery of equipment was in line with the growth rate of installed capacity. The delivery of hydropower equipment entered a peak period and the annual output increased by 32.18% year-on-year. In December 2011, the output of steam turbines for power stations increased by approximately 6% year-on-year, while the output of turbine generators increased by 87.5% year-on-year.

Distribution transformer growth is higher than the industry average. In 2011, the capacity of newly added 220 kV and above substation equipment for infrastructure construction in China was 209 million kVA, an increase of 49 million kVA over the previous year. The cumulative output of transformers in 11 years was 6.9%, lower than the growth in electricity consumption. In December 2011, the output decreased by about 2% year-on-year.

This is mainly due to the decrease in the number of 220kV and above transformer purchases and the increase in the number of low-voltage-level distribution transformers, resulting in a decrease in total production (by capacity). Under the planning of distribution network transformation, we expect the growth rate of low-voltage distribution transformers will continue to be higher than the overall growth rate of the transformer industry.

The medium and high voltage switchgear should continue to pay attention. In 2011, the output of high-voltage switchgears increased by 17.59%, and the output in December increased by more than 32% year-on-year, which was much faster than the increase in electricity consumption. We believe this is closely related to the country’s acceleration of distribution network and rural power grid construction. During the “12th Five-Year Plan” period, the overall growth rate of medium-voltage equipment will be higher than the industry average of power equipment.

Power distribution and rural power grids, nuclear power and UHV are subject to public opinion. Securities Times, China Securities Network, and CCTV reported on issues such as investment in rural power grids, shortage of power supply, restart of nuclear power generation, and UHV and thermal power construction. We believe that companies related to power distribution and rural power network should pay constant attention to nuclear power and UHV related issues. Businesses have investment opportunities this year.