Energy & Resources

Western power

State Grid rolls out expansion in Europe

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From Tianjin to Tuscany

Winston Churchill memorably described Russia as “a riddle, wrapped in a mystery, inside an enigma”. In WiC’s view the same quote might equally be applied to China’s electricity behemoth, the State Grid – a company we have followed closely since around our third issue, when we first discussed its ambitions to build a new ultra high-voltage (UHV) transmission network across China.

Not surprisingly, State Grid invokes strong feelings among Chinese decisionmakers. Reformers see it as an overly-powerful beast that controls 90% of China’s power distribution, monopolistically supplying electricity to 1.1 billion people. On the other hand, corporatist types – who have favoured an alternative ideology known as ‘state-led capitalism’ – view the company as a national champion.

The ‘enigma’ for WiC is the often contradictory messages that come from the corridors of power as to which wing is in the ascendant – and is therefore shaping the influential company’s future. In May the statists seemed to score a landmark victory when the firm finally (after much delay and many arguments) got the go ahead to begin work on 10 UHV lines at a cost of Rmb381.5 billion ($62 billion, see WiC235). This set in motion what is likely to be one of the world’s biggest infrastructure investments, with analysts reckoning State Grid would now get its way on a national rollout of UHV at cost of $250 billion by 2020. That looked a defeat for reformers, who’d argued against the controversial plan, citing technological concerns and worries it would lead to State Grid exercising an even greater control over the power industry (see WiC174).

On the other hand, massive graft purges in the electricity sector – starting at the Three Gorges Dam in late March (see WiC232) – seemed to be sending a message that the reformers had the upper hand and were readying to pare back the overmighty company’s influence. Indeed in June, the State Grid even made market-friendly noises for the first time, suggesting it would welcome private capital to help build a national vehicle-charging network for electric cars – thereby sharing the fruits of this growing business with entrepreneurs. It also said it would allow private-sector operators to feed new energy power sources (such as solar) into its nationwide system. CBN called both moves “an icebreaker” (see WiC240).

More recently the political pendulum looks to have swung the other way again, with State Grid expanding aggressively abroad. Back in the ‘national champion’ mode it has now unveiled a bold European strategy. Last month it bought a 35% stake in Italy’s grid operator, which is the sixth biggest in the world, according to the People’s Daily. That $2.8 billion deal may swiftly be followed by another. State Grid has joined a consortium with the Belgian grid operator Elia to bid for a 66% stake in the Greek electricity transmission firm ADMIE.

A top executive at State Grid told the Chinese press that it would make further investments in Europe, bringing its UHV and smart grid technologies to the continent.

Its timing is savvy. People’s Daily also comments that the EU is concerned that its target of linking member states with a ‘Eurogrid’ by 2015 is lagging – with many local governments and indebted firms unable to make good on grid commitments in the aftermath of the euro crisis. An EU energy commissioner has even told reporters that the EU welcomes State Grid’s participation in grid construction – so long as it abides by the relevant laws.

The Chinese firm is not lacking in financial firepower. It has spent almost $3 billion on overseas investments this year alone, and now tallies $23 billion in foreign assets.

Its UHV technology also got a boost last month when a deal was signed in Brazil to build with Electrobras the Belo Monte Hydropower UHV Transmission Project. According to financial website Hexun this is the first time State Grid’s UHV system has won an overseas contract, and marks a “major breakthrough”. It even adds that as the first mover in UHV some industry sources think China’s technology could become the international standard.

Should that be so, this enigma will soon face the sort of scrutiny from foreign media that it currently gets from the Chinese press…

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