Earlier this week the Financial Times columnist Edward Luce mentioned that his Indian mother-in-law was unhappy. Having recently arrived on a visit to the US, she contested that America’s east coast power grid was “as bad as India”.
It was an eye-opening comment, no doubt designed to shock Luce’s American readers. He continued: “It is hard to pinpoint the date at which Americans developed an Indian – or perhaps British – fatalism about the declining quality of their infrastructure. When my British mother spent several months in the US in the 1950s, it was dazzlingly futuristic… But bit by bit over the past 30 years, the world’s first truly modern infrastructure has shown its age. It has been starved by a generation of under-investment.”
For a topic to compare-and-contrast the recent experiences of the United States with China, there are few starker than spending on infrastructure. In the past couple of decades, Beijing’s enthusiasm for new roads, railways and bridges has been unequalled. Tens of thousands of miles of new expressway criss-cross the country, mighty rivers have been dammed, and sleek bullet trains connect formerly distant cities. Admittedly, the record isn’t spotless – shoddy construction has led to some accidents. But the overall scale of China’s achievement still leads to the conclusion that it has been as hell-bent on spending on infrastructure as America seems to have been on dodging doing so.
Of course, there is also a debate surrounding whether this spending has become excessive. A working paper released by the IMF this month seemed to think so, suggesting that China had invested too much as a percentage of GDP, especially between 2007 and 2011.
“Depending on precise assumptions, over this period, China may have been over-investing by between 12 and 20% of gross domestic product relative to its steady-state desirable value,” the report warned, predicting that future investment wouldn’t generate the same levels of growth.
Others counter that China’s investment needs – especially in urban infrastructure – are far from sated (see WiC171).
Into this controversy steps State Grid – the monolith that transmits and distributes electricity to 1.1 billion people across 90% of the country. Last week Reuters revealed that the firm has stepped up its lobbying for an upgrade to its current plan for a new ultra-high voltage (UHV) power grid. Reuters says State Grid’s boss Liu Zhenya wants to up the number of new national powerlines to 20, with analysts estimating that this could see the firm spend $250 billion on the project by 2020.
Regular WiC readers will recognise the UHV project. We first cited State Grid’s ambitions in issue 3 but looked at them in more depth in WiC108, when CBN reported that State Grid had got the go-ahead to invest Rmb500 billion ($80.3 billion) in UHV during the current five-year plan. That far outstripped the Rmb203 billion spent on the Three Gorges Dam – another gargantuan power project.
Clearly, State Grid hopes to spend a lot more in the second half of the decade. It believes the new technology is required to move power more efficiently from regions where energy resources are most plentiful to the cities and provinces where need is highest.
For instance, at present the hauling of coal from pits to urban power stations ties up more than 60% of China’s rail capacity. UHV would free much of the railways up for other purposes.
State Grid also argues that construction of the lines will boost the economy. UHV is also based on 139 domestically-held patents, and showcases local technology.
As WiC has earlier reported, UHV is not without its critics. In late 2010 a group of power industry experts signed a joint letter to Premier Wen Jiabao raising questions about its likely success. One particular fear is its potential to create nationwide blackouts, especially as the technology has never been tested on this scale, and other nations have rejected UHV. The critics also said a 653km test line between Shanxi and Hubei had underperformed in the amount of power transmitted.
The Lantau Group, a Hong Kong-based energy consultancy, then published a report in July that indicated UHV lines brought virtually no cost-savings over transporting coal by rail for power generation.
But State Grid’s latest demands for an even more costly UHV grid are also seen as a power play – squarely aimed at consolidating its place at the heart of the electricity industry. This then touches on the reform debate in China, especially the reining in of the big SOEs. Reformers would like to see State Grid’s fiefdom broken up, and more competition introduced into the power sector. So approval for its UHV plans will offer a litmus test for which faction (state capitalists versus the proponents of more market-driven reforms) currently has the upper hand.
The Reuters article mentions other arguments in favour of UHV. China’s power needs will grow from 1,060 GW to 1,500 GW by 2020. If this is to be absorbed in a green fashion, UHV will be required to transmit the electricity generated by alternative energy over vast distances: from less populated areas to urban and industrial centres.
Possibly this is State Grid’s strongest argument. For example, by 2020 China plans to have 200 GW of installed capacity in wind-generated power – absorbing a significant portion of its expanding energy needs.
The experience of Inner Mongolia shows some of the drawbacks of the current power network. The Economic Observer reports that the region has the potential to farm 150 GW of wind power.
So far 150 wind projects have been built in Inner Mongolia, with a capacity of 14.57 GW. However, by the first quarter of this year 45.2% of those turbines were idle. The problem? The local grid already has a surplus of coal-generated power and has no need of all the new wind capacity.
On the other hand, the current grid is not designed to transport this surplus power to far-flung parts of the country.
State Grid argues that UHV is essential to making Inner Mongolia’s power generation genuinely productive, promising that no more than 5% of China’s wind turbines will ever be idle when the new grid is finished.
Keeping track: a corruption scandal at the Three Gorges Dam Corporation in late March has cast new light on the amount spent building the dam. The figure in the above article now looks far too low, with estimates of the total cost now running at $80 billion. (Apr 8, 2014)
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