China wants to provide electricity to the entire world

0
51

Deep in a tangle of planning bureaucracies in western Beijing, the future of a country nearly 3,000km away is under discussion. Xie Qiuye, president of China’s Electric Power Planning & Engineering Institute, has been charged with developing an electricity plan for Laos, a nation struggling with a glut of electricity supply from Chinese-built dams on the Mekong river.

Mr. Xie’s job is to find a rational solution for Laos, even as powerful Chinese construction companies vie for more dam contracts in China’s poor southern neighbour. His answer — to make Laos into a regional power hub, exporting electricity to the rest of south-east Asia — depends on a technology that is being pushed hard by a powerful former state electricity boss with a vision for connecting world power markets.

In Laos, in Brazil, in central Africa and most of all in China itself, ultra high-voltage cable technology that allows power to be commercially transported over vast distances with lower costs and increased load is justifying the construction of massive power projects. It is dubbed the “intercontinental ballistic missile” of the power industry by Liu Zhenya, its biggest backer and for a decade the president of State Grid, China’s powerful transmission utility.

Receive 4 weeks of unlimited digital access to the Financial Times for just $1.

UHV allowed China to binge on dam building in its mountainous hinterland, then transport the power thousands of kilometres to its wealthy, industrial east coast. But by enabling this, and other projects, UHV has left western China with such a glut of power that Mr. Liu in 2016 proposed using the technology to export power as far away as Germany.

Now Mr. Liu is promoting UHV internationally through his Global Energy Interconnection initiative. Designated a “national strategy” and championed by Xi Jinping, China’s president, the initiative feeds into one of China’s most ambitious international plans — to create the world’s first global electricity grid.

“All of this fits in with Beijing’s goals of expansion and being a global standard setter,” says Erica Downs, an expert on China and energy at Columbia University. “It is also linked to China’s intention to become an advanced industrial superpower. There is a big prestige element in this.”

Advocates stress that this does not mean China would control the resulting grid but networks would be linked to allow better cross-regional allocation of power surpluses. It is no coincidence that this would resolve the problem of “trapped” power resulting from some of China’s mega construction projects in countries like Laos that lack a big enough domestic market.

Some western observers see a geopolitical strategy on a par with China’s Belt and Road Initiative, a grand design that seeks to boost Chinese-led infrastructure investment in more than 80 countries around the world.

“While there is certainly a commercial explanation for China’s rapid expansion in the power sector, it should also be recognised that Beijing is known to intertwine its economic, diplomatic and strategic initiatives,” says Andrew Davenport, chief operating officer at RWR Advisory, a Washington-based consultancy. “Part of the explanation for its expansion in this area is, therefore, likely the influence — and soft power gains — that accompanies increased control over an industry so fundamental to the everyday lives of citizens.”

Chinese companies have announced investments of $102bn in building or acquiring power transmission infrastructure across 83 projects in Latin America, Africa, Europe and beyond over the past five years, according to RWR. Adding in loans from Chinese institutions for overseas power grid investments brings the total to $123bn.

Throw in all power-related Chinese deals overseas, including investments and loans to power plants as well as grids, and the number almost quadruples. Between 2013 and the end of February 2018, total overseas power transactions announced reached $452bn, up 92 per cent from 2013 levels, according to RWR, which strips out of its calculations deals that are announced only to be subsequently cancelled.

Officials and power industry analysts in China insist that it would be too simple to assume that such investments are all slated to be rolled up into a single international grid to achieve the GEI goal, which Mr. Liu recently described as similar to the internet: global but not controlled by a single country.

The first stage, set to run until 2020, involves investment in domestic grid assets within other countries. The second phase would see the knitting together of some of those grids and that generation capacity. “From 2020 to 2030, the task will be to promote intra-continental interconnection with the interconnection of Asian, European and African grids being basically realised,” Mr. Liu said recently in London.

1. China power surge Brazil

China’s State Grid has invested more than $21bn to become the biggest power generation and distribution company in Brazil. Its executives promise an extra $38bn in investment over the next five years. Central to their ambitions is to showcase ultra high-voltage transmission technology, which is able to transmit electricity over vast distances at sharply reduced cost. The first UHV line built by the Chinese outside the country runs 2,000km from the Belo Monte hydropower dam (above) in the Amazon region to cities in the south of Brazil.

Although Chinese companies would not necessarily own or control the regional grids, their influence, via the assets they do control, would ultimately lead to regional interconnection.

“China’s state-owned power companies are pursuing an aggressive overseas expansion strategy, investing in the construction and operation of energy networks in some countries and as equity investors in others,” says Xu Yi-chong, a politics professor at Griffith University, Australia and author of Sinews of Power, a book about State Grid. “[But] China’s push for interconnectivity does not have to mean that Chinese companies own or operate the grid.”

The ambition is huge, envisaging linking up more than 100 countries. But China has considerable organisational, financial and technological firepower.

The state-owned power companies that are hitting the acquisition trail overseas rank as global heavyweights. State Grid is ranked as the world’s second-largest company after Walmart in the 2017 Fortune 500 list. On important issues such as GEI these companies partly co-ordinate their actions through the China Electricity Council, an official body led by Mr. Liu, and reporting to the State Council, China’s cabinet.

The financial firepower at the disposal of these state-backed companies to sweeten bids for assets overseas is underwritten by China’s policy banks, the China Development Bank and the Export-Import Bank of China.

“You have to understand, the GEI is a personal priority of Xi Jinping,” says one senior power official. “Of course, Chairman Liu [Zhenya] and all the other chief executives are under great pressure. Xi does not tolerate failure.”

2. China power surge Southern Europe

China is already a big presence in southern European power grids. State Grid became the biggest shareholder in REN, the Portuguese national grid company, in 2012. Another Chinese state-owned enterprise, China Three Gorges, is seeking to increase its 23 per cent stake in EDP, Portugal’s biggest company whose assets include the Alqueva dam (above), to give it control over a further 220,000km of transmission lines in the country plus grid assets in Spain and Brazil. Chinese state companies also own significant grid assets in Italy and Greece, bringing the goal of a southern European grid controlled by China closer.

The biggest boon for China’s global grid ambitions is UHV cable technology. While other companies such as Germany’s Siemens and the Swedish-Swiss conglomerate ABB also have the technology, Chinese companies have been the first to deploy it on a grand scale, developing global industry standards.

China has already demonstrated the technology’s performance at home. The 37,000km of UHV cable that is laid or under construction in China can carry a load of 150GW, equivalent to 2.5 times the maximum electricity load in the UK. And despite some pushback from the country’s entrenched power generators, Mr. Liu claims that the cables are particularly applicable to renewable energy.

Steven Chu, a former US secretary of energy, has called China’s strides in UHV technology a “Sputnik moment” for the US, alluding to the Soviet Union’s 1957 launch of the first earth-orbiting space satellite, which marked a technological leap ahead of the US.

3. China power surge Africa

The biggest geographical concentration of Chinese investment in power has come in Africa, where 39 projects were announced in the five years to the end of February 2018. Analysts talk of Chinese plans to create regional power grids across the continent. State Grid is set to take a controlling stake in a $2.8bn project to build the transmission backbone in Mozambique, which will link up with the Southern African Power Pool, an interconnected electrical system for Southern African countries. Nigeria is also a key focus with China’s ExIm Bank funding the $5.8bn Mambilla hydroelectric project (above) and Chinese companies building it.

“China has the best transmission lines in terms of the highest voltage and lowest loss,” Mr. Chu has said. “They can transmit electricity over 2,000km and lose only 7 per cent of the energy. If we [the US] transmitted over 200km we would lose more than that.”

The technology promises to reshape the way in which the world consumes power, Mr. Liu told his London audience. He used the hypothetical scenario of hydropower generated in the Democratic Republic of Congo for $0.03 per kWh being transmitted to Europe through Chinese UHV cables at a cost on delivery of just $0.07-0.08 per kWh. This compares with an average cost of €0.20 ($0.23) per kWh to households in the EU, according to Eurostat, the data agency.

Mr. Chu’s rosy assessment is not shared by everyone. Although the percentage of power lost is lower than through other transmission technologies, the distances over which China deploys the cables means that total power losses are still significant. Meanwhile, the technology has allowed China to prioritise massive projects with disproportionately high environmental impact, both at home and abroad.

At the same time State Grid has yet to win many UHV construction projects abroad. Its main success has been in Brazil, where its acquisitions have made it the country’s largest generation and distribution company, paving the way for it to install UHV cables from a hydropower dam deep in the Amazon to cities 2,000km to the south. It now has ambitions to build more UHV lines as part of an estimated $38bn in extra investment in Brazil over the next five years.

For now, China’s power companies are more focused on building their international generation and transmission assets. China Three Gorges, one of the world’s largest electricity groups, last month bid to take control of Portugal’s biggest company, the power utility Energias de Portugal. Regulators rejected the initial Chinese offer of €9bn, but it is expected to follow up with more attractive bids.

If successful, the deal will bring one step closer a proposal to create an interconnected southern European grid, says Prof Xu. That would involve linking power assets largely built up in the wake of the financial crisis. China Three Gorges first bought into EDP in 2011 and has invested in its renewables arm. In 2012, State Grid became the largest shareholder in Redes Energéticas Nacionais, Portugal’s national power grid. In 2014, State Grid took a stake in Italy’s CDP Reti, which owns gas and power transmission networks. In 2017, the Chinese utility completed its purchase of 24 per cent of ADMIE, an independent grid operator in Greece.

The interconnection ambitions combined with the aggressive acquisition strategies of Chinese state-owned actors have met more opposition in northern Europe. State Grid failed in a bid to buy 14 per cent of Eandis, a public distributor of gas and electricity in Flanders, after the city of Antwerp blocked the bid. In May it made a fresh attempt to buy a 20 per cent stake in Germany high-voltage energy network 50 Hertz after an earlier bid failed, according to people close to the deal.

With its great distances, hunger for energy and increasing reliance on renewables, Prof Xu believes the most likely place for the first interconnected grid is Africa. It has attracted 39 power deals since 2013, more than any other region, according to data from RWR.

“There are a number of Chinese companies doing big power generation projects, which need to be connected with new transmission and distribution systems,” Prof Xu adds.

In south-east Asia Mr. Xie, the state planner, takes his responsibilities seriously, including making a visit to Laos in 2017. He sees regional power integration as an economically and environmentally efficient solution to the problem of “everyone wanting to build their own”.

He adds: “It’s against everyone’s interests to build [power plants] and not sell the power. We want to avoid future problems.”

More from the Financial Times:
China, Japan open hotline to prevent military clash
Default reignites questions over China group’s state backing
China’s state enterprises cut debt, while private groups lever up

LEAVE A REPLY

Please enter your comment!
Please enter your name here