Energy Transition Accelerating: Non-Fossil Energy Doubling Target Reshapes Sector Fundamentals

Policy Anchor: Non-Fossil Energy Supply to Double by 2035

In April 2026, the NDRC confirmed its expectation that non-fossil energy supply will double by 2035 versus 2025, setting one of China’s most explicit medium-term energy transition targets. Concurrently, the NDRC and NEA issued a notice on green power direct connection, requiring new projects to achieve at least 60% self-consumption, easing renewable curtailment and improving utilization efficiency.

Together, these policies strengthen the long-term demand outlook for solar, wind, and storage by supporting sustained installation growth while also improving project economics through higher power utilisation. This provides a clearer earnings recovery framework for companies within the CSI New Energy Index.

Separately, the 2026 Government Work Report highlights acceleration of satellite internet development, offering a longer-term incremental growth avenue for the space solar value chain driven by rising global satellite deployment, though its near-term impact remains limited.

Global Positioning: China Dominates Clean Energy Supply Chains, Energy Security Demand Accelerating Outward

Beyond domestic policy support, a more structural driver is China’s entrenched dominance in global clean energy hardware, which continues to deepen. In solar, China accounts for over 80% of global supply chain capacity from polysilicon to modules, with upstream segments such as polysilicon, ingots, and wafers reaching ~95% share. In EV batteries, China’s share of global installed capacity has risen to ~70% in 2025, up sharply from ~50% in 2021.

This supply strength is increasingly being reinforced by geopolitics. Rising Middle East tensions and risks around the Strait of Hormuz are prompting energy-importing countries to reassess oil dependence, echoing Europe’s post–gas crisis pivot—except now the shift is toward faster, cheaper-to-deploy clean energy technologies. Many governments are now framing this as a strategic energy security transition rather than purely a decarbonisation goal.

Importantly, this demand surge is already visible in trade flows. In March 2026, China’s combined solar, battery, and EV exports hit a record ~USD 21.9bn, up ~70% YoY and ~38% MoM. Solar module and cell exports reached ~68GW, nearly doubling from February and surpassing the previous peak by ~49%—equivalent to Spain’s total installed capacity, with ~50 countries recording record monthly imports from China.

AI Compute Driving Green Power Demand, Creating New utilization Channels

Rapid AI infrastructure expansion is emerging as a new structural demand driver for renewable energy. Global tech firms such as Alphabet, Microsoft, and Amazon have committed to 100% renewable-powered data centres, while domestic cloud providers are also scaling green power procurement via long-term contracts. These agreements typically feature high stability and pricing premiums, improving earnings visibility for solar, wind, and storage operators.

This AI-driven demand channel complements policy support by adding market-based, high-quality utilisation for renewables beyond regulatory mandates. For power generation constituents in the CSI New Energy Index, it represents an incremental positive driver for contracted volumes, pricing, and long-term earnings stability.

Solar: Supply-Side Consolidation Accelerating, Earnings Recovery Conditions Maturing

Since 2022, the solar sector has faced three years of capacity expansion and intense price competition, with polysilicon prices falling over 90% from their peak and significantly compressing industry profitability.

From 2026, however, industry structure is turning more constructive. “Anti-involution” production discipline is accelerating, with coordinated output cuts and pricing stabilisation leading to faster exit of inefficient capacity and rising market share for leading players. At the same time, higher-wattage modules (>750W) are supporting ASP recovery in the module segment. In parallel, rising silver prices are accelerating substitution toward lower-cost materials in cells, improving long-term cost curves.

The earnings transmission pathway for constituent stocks typically progresses from supply contraction to price stabilisation, followed by gross margin recovery among leading companies and ultimately EPS upgrades. Key beneficiaries of this dynamic include LONGi Green Energy, a leading solar wafer and module producer; Tongwei, a major player in polysilicon and solar cells; JinkoSolar, a leading module exporter; and Sungrow, a global leader in inverters and solar-storage integration.

Wind: Domestic Offshore Wind and European Demand Resonating Together

Since 2026, the domestic wind power sector has benefited from both domestic policy support and improving global demand conditions. Domestically, coastal provinces such as Fujian continue to launch large-scale offshore wind EPC tenders, with recent projects (e.g., 656MW auctions) underscoring steady project pipeline visibility. At the same time, rapid technological progress is driving larger turbine sizes, with mainstream offshore models now reaching the 18–20MW range, contributing to a sharp decline in levelised cost of energy and improving project economics.

On the external front, heightened geopolitical tensions in the Middle East have driven up natural gas prices, reinforcing Europe’s urgency to strengthen energy security. The EU has explicitly framed this environment as a strategic opportunity to accelerate the energy transition, with renewed momentum for offshore wind deployment as part of its push to reduce fossil fuel dependence. This policy shift mirrors Europe’s response to the earlier gas crisis but with greater urgency, providing structural support for offshore wind demand and strengthening the overseas order pipeline for Chinese turbine and submarine cable manufacturers.

Energy Storage: High Buoyancy Continuing, Large-Scale and Commercial/Industrial Storage Advancing Together

In energy storage, the sub-sector continues to demonstrate high-growth and relatively stable visibility within the CSI New Energy Index. Rising renewable penetration is increasing grid balancing requirements, driving higher co-location storage ratios, while green power direct connection policies are improving the economics of independent commercial and industrial storage. In parallel, rising AI data centre deployment is increasing demand for backup power and storage solutions.

From a data perspective, CATL’s energy storage system shipments grew over 40% YoY in 2025, according to company disclosures. After bottoming in late 2024, large-scale storage cell prices have stabilised and shown early signs of recovery since 2026. Leading integrators such as EVE Energy continue to benefit from strong order visibility, with backlog coverage at elevated levels. Meanwhile, improving grid utilisation frameworks are enhancing returns for independent storage assets, supporting new investment demand.

Hydrogen energy also forms part of the CSI New Energy Index, though it remains at an early commercialisation stage. The National Energy Administration’s recent advancement of regional hydrogen pilot programmes has helped clarify pathways such as green hydrogen and green methanol. However, given its relatively small index weight and early-stage development, hydrogen is treated as a long-term option and excluded from near-term earnings forecasts to avoid over-quantification of an emerging segment.

CSI New Energy Index: Broad Coverage, Balanced Capture of the Complete Energy Transition Roadmap

The CSI New Energy Index (399808.SZ) is compiled by China Securities Index Co. and covers A-share listed companies across the full new energy value chain, including solar, wind, energy storage, NEVs (including the three core systems¹), and hydrogen. It is one of the most comprehensive thematic indices for broad-based exposure to China’s energy transition.

The three core systems refer to the battery, electric motor, and electronic control system, which form the foundation of new energy vehicles. Compared with narrower NEV-focused indices, the CSI New Energy Index is characterised by its multi-theme structure. It provides diversified exposure across solar, wind, storage, and EVs, allowing different sub-sectors to offset cyclical volatility. For example, solar benefits from supply-side consolidation cycles, while storage and wind provide growth and policy-driven upside, and EV-related sectors contribute earnings momentum during penetration phases.

In terms of composition, solar-related constituents (including polysilicon, wafers, cells, modules, and inverters) account for roughly 30–40% of index weight. Energy storage and EV batteries together account for around 25–35%, NEVs around 10–15%, wind around 10–15%, with the remainder consisting of grid equipment, lithium materials, and related upstream segments (as of 31 December 2025, subject to quarterly updates).

Featured Product: China Southern CSI New Energy ETF (516160.SH)

Fund Profile: China Southern Fund's Core Broad-Based New Energy Product

China Southern CSI New Energy ETF (516160.SH), established on 22 January 2021, tracks the CSI New Energy Index (399808.SZ) and is one of the largest broad-based new energy thematic ETFs in the A-share market by AUM. Fund manager China Southern Fund Management Co., Ltd., established in 1998, manages total assets exceeding RMB 1 trillion, with a comprehensive passive index product line.

The fund is co-managed by Gong Tao and Pan Shuiyang, both serving since the fund's inception date (22 January 2021), with a tenure of around 5.2 years and total AUM under management of around RMB 13.2 billion. Cumulative return since inception: -3.95% (benchmark index: -10.25%). The cumulative deviation from the benchmark CSI New Energy (price return index) of +6.30 percentage points (annualised around +1.29%/year) primarily stems from the compounding effect of constituent stock dividend reinvestment (see Historical Performance section below), reflecting stable passive tracking results compared to the index.

Two points should be clarified: First, the fund's inception date (22 January 2021) coincided with the tail end of A-share new energy market peak conditions. Upon completing initial portfolio construction, the fund immediately encountered the deep sector corrections of 2022–2023, resulting in a negative absolute return. This reflects the historical timing context of the initial positioning, not a reflection of management capability.

Second, the since-inception return is -3.95% (starting 22 January 2021), while the 5-year return is +14.87% (starting 30 March 2021), a difference of around 18.8 percentage points.

This gap is mainly attributable to the rapid correction in the new energy sector between February and March 2021: this decline period is captured only under the 'since inception' basis, while the '5-year' basis happens to skip this particular interval.

Excluding the initial timing distortion, the fund has recorded positive excess returns compared to the benchmark for four consecutive years (2022–2025), with the excess return expanding over time (+0.68 → +1.22 → +1.86 → +2.00 percentage points), demonstrating the consistency of tracking quality.

it is important to note that tracking results are subject to market liquidity, subscription/redemption activity, and other factors; future tracking error cannot be guaranteed to maintain current levels.

Asset Allocation and Portfolio Structure: High Equity Ratio, Balanced Multi-Sub-Track Positioning

In terms of asset allocation, the fund has maintained equity exposure in the 98%–100% range across all quarters since inception. Recent data shows equity holdings at around 99% of NAV, with bonds and cash near zero. The high equity ratio strategy ensures investors receive complete market beta exposure to the CSI New Energy Index without missing sector moves due to active cash management.

In terms of portfolio structure, the CSI New Energy Index provides balanced coverage across four main themes of solar, wind, storage, and EVs, forming a multi-layered 'offensive-defensive' combination: solar leaders (LONGi, Tongwei, JinkoSolar) provide earnings recovery elasticity against the backdrop of supply-side consolidation; energy storage and wind (Sungrow, Mingyang Smart Energy) benefit from cyclical expansion; EV batteries and OEMs (CATL, BYD) contribute stable growth under continuously rising NEV penetration; grid equipment (TBEA) provides defensive returns amid accelerating grid investment. These four asset types

The indicative constituent stock distribution is as follows (specific weights subject to the latest quarterly report):

Note: The above table is an indicative constituent stock distribution; actual weights are subject to the latest quarterly report.

Source: iFinD, iFAST Financial Research compilations

Data as of 31 December 2025

Historical Performance: Positive Excess Returns for Four Consecutive Years During Headwinds, Strong Recent-Year Elasticity

The table below summarises the fund's performance across major time horizons (as of 30 April 2026). it is important to note that the benchmark CSI New Energy Index (399808.SZ) is a Price Return index, which does not include cash dividends from constituent stocks, while the ETF's NAV (total return basis) fully incorporates dividend income from holdings. The cumulative Alpha of +6.30 percentage points (annualised around +1.29%/year) shown in the table primarily derives from the dividend compounding

The absolute return since inception is -3.95%, mainly because the fund was established in January 2021 during a sector high, and upon completing initial construction, immediately encountered two consecutive years of deep corrections in 2022–2023 (annual declines of -27.42% and -34.63% respectively). The fund's excess return compared to the benchmark (Alpha) has expanded over time (2022: +0.68 → 2023: +1.22 → 2024: +1.86 → 2025: +2.00 percentage points), a trajectory consistent with the sector's dividend payout ratio

Source: iFinD, iFAST Financial Research compilations

Data as of 30 April 2026

The chart below shows the cumulative return trajectory comparison since inception:

Source: iFinD, iFAST Financial Research compilations

Data as of 30 April 2026

Fee Rate, Scale, and Tracking: Three-Dimensional Comparison of the China Southern CSI New Energy ETF

The iFAST Financial Research Department applies a unified quantitative screening framework to peer ETFs tracking the same index. The framework evaluates products across three key dimensions: expense ratio (total management and custody costs), liquidity (bid–ask spreads and 90-day average daily trading volume), and tracking accuracy (three-year tracking error). This approach captures the core cost of passive index exposure while also assessing secondary market liquidity and the quality of net asset value replication, forming a standard institutional framework for ETF selection.

Among ETFs tracking the CSI New Energy Index (399808.SZ), the China Southern CSI New Energy ETF (516160.SH) exhibits the following characteristics: an annual management fee of 0.15%, placing it in the lowest tier among A-share new energy thematic ETFs; assets under management of approximately RMB 7.66 billion as of end-March 2026, ranking it among the largest ETFs tracking the index; and four consecutive years of positive excess returns versus the price return benchmark from 2022 to 2025 (+0.68 → +1.22 → +1.86 → +2.00 percentage points), covering a full industry cycle.

Taken together across fee level, scale, and tracking performance, the China Southern CSI New Energy ETF (516160.SH) can be regarded as a core beta instrument for broad-based exposure to China’s new energy sector.

Valuation and Three-Year Return Potential

Earnings Forecast Model

All earnings forecasts below are independent estimates from iFAST Financial Research.

2025A growth of around +28%, primarily from energy storage and EV chains recovering first; 2026E Research Department estimate of around +44%, primarily from concentrated realization of solar leader earnings recovery (first full recovery year after supply-side consolidation) and ramp-up of wind turbine orders; 2027E declining to +28% as the base rises; 2028E further stabilising to +20%, corresponding to the industry's transition to a stable growth phase. The decline in growth rate narrows over time (-16 percentage points → -8 percentage points), with a smooth trajectory.

³ The P/E in each year column is calculated as the current market price divided by the corresponding year's forecast EPS; the 2028E column of 20.9x is the static forward P/E under a scenario of no change in current price, and does not represent a target pricing. Three-year potential upside = (Target PE × 2028E EPS) / (Current TTM PE × 2025A EPS) − 1 = (28 × 1.79) / (46.2 × 0.81) − 1 ≈ +34% (scenario analysis, not a price forecast).

Source: iFinD, iFAST Financial Research compilations

Data as of 30 April 2026

Rationale for 28x Fair P/E: The current 2025 TTM P/E of the CSI New Energy Index at around 46.2x is in a relatively elevated historical range — this level incorporates the market's forward pricing of accelerating earnings recovery in 2026–2028. Referencing the mature-phase valuation anchor of the broad-based new energy value chain (parallel multiple themes of solar, wind, storage, NEVs) transitioning from high-speed expansion to stable growth, we use 28x as the long-term fair P/E assumption — this level is materially below the peak P/E reached during the new energy bull phase of 2019–2021.

Three-Year Target Upside: Applying a 28x fair P/E to the 2028E forecast index EPS of RMB 1.79, the CSI New Energy Index implies around +34% three-year potential upside from current levels (scenario analysis, not a price forecast). This return is earnings-growth-driven — EPS growing from RMB 0.81 in 2025 to RMB 1.79 in 2028 (cumulative around +121%) constitutes the primary driver; At the same time, P/E naturally reverting from 46.2x to 28x fair level creates an anticipated 'scissors gap' of earnings growth and valuation compression.

China Southern CSI New Energy ETF (516160.SH) Three-Year Target NAV

The +34% three-year upside scenario above is calculated based on the CSI New Energy Index (price return basis). The China Southern CSI New Energy ETF's (516160.SH) unit NAV uses a total return basis — constituent stock dividends are fully included and compounded through reinvestment — creating a structural outperformance compared to the price return benchmark, which is the direct source of the ETF-level target NAV exceeding the index upside.

From historical data, the fund's cumulative deviation from the price return benchmark since inception on 22 January 2021 is +6.30 percentage points, annualised around +1.29%, with positive excess returns recorded for four consecutive years in 2022–2025 (see Historical Performance section above). Given that the constituent stock payout ratio has already declined from 64.79% in 2024 to 40.58% in 2025, this calculation uses the long-term average since inception rather than the two-year recent average (2024–2025 simple average around +1.93%) as

Three-Year Target Cumulative Return: Compounding the index's +34% price upside with the +3.9% dividend compounding premium, the three-year cumulative return scenario target for the China Southern CSI New Energy ETF (516160.SH) is around +39% (scenario analysis, not a price forecast), implying a target NAV per unit of around RMB 1.39 for every RMB 1 of current NAV per unit. Investors may multiply the fund's NAV per unit as of 30 April 2026 by the around 1.39 target multiplier to arrive at the corresponding three-year scenario target NAV. it is important to note that the above target is based on 2028

Source: iFAST Financial Research compilations

Data as of 30 April 2026

Finally, it is worth emphasising that the current acceleration in demand is structural rather than cyclical in nature. At the global level, the displacement of fossil fuels by clean energy has crossed the threshold of 'marginal supplementation' and entered the scale of 'substantive substitution': the new solar power generation capacity added globally in 2025 is sufficient to replace all the LNG transported through the Hormuz Strait in the past year in terms of power generation equivalent; global EV fleet has already reduced global daily oil demand by around 1.8 million barrels, equivalent to around 13% of US daily crude production. More fundamentally, the energy

Risk Factors

•         Sustained Solar Price Competition: If overcapacity in polysilicon and module production is absorbed more slowly than expected and the 'anti-involution' consolidation process is delayed, solar leader earnings recovery may be less than projected — the highest-sensitivity variable among this report's core assumptions.

•         Wind Turbine Installations Below Expectations: If domestic wind power project approval and construction cycles are delayed due to policy execution or grid connection issues, wind turbine shipments and related constituent stock earnings could come in below expectations.

•         Energy Storage Price War Risk: If energy storage cell capacity expansion continues to outpace demand growth and price competition intensifies again, this would compress the earnings recovery space for cell manufacturers and system integrators.

•         NEV Penetration Slowdown Risk: If EV penetration rate growth moderates on a high base, this will transmit upstream to battery and materials shipment volumes, affecting revenue expectations for related constituent stocks.

•         Valuation and Earnings Path Risk: The three-year target in this report is based on the compound assumption of a 28x fair P/E and cumulative +121% EPS growth; if the index P/E compresses faster than expected, or if the EPS path is revised down due to any sub-track earnings recovery underperforming, the target upside could be materially lower than calculated — a systemic sensitivity variable alongside specific sub-track risks.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.