Tuesday, June 26, 2018

The next frontier for China - global electricity grid?

FT reports on China's latest global endeavour, the Global Energy Interconnection (GEI) initiative, the equivalent of an internet for electricity.

It is a plan to create a global electricity grid by producing electricity, especially hydro, in China's mountainous hinterland and other low-cost locations around the world, and then transmitting it through underground ultra high voltage (UHV) cable lines as far away as Germany. The country's world leading state owned electricity companies would lead the charge. 

Consider this,
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... 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...
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 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... China has already demonstrated the UHV 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... 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.

The Chinese push in the development of globally interconnected electricity grid creates the possibility of the country being able to exercise the sort of influence in the electricity sector that US currently does over the internet. This becomes a likelihood at least in Africa, parts of Asia, and Latin America as Chinese loans and power generation, transmission, and distribution companies have made massive investments that give them a dominant stake in the respective markets. 

While there are also significant technical, practical and political barriers to be overcome to realise the vision that Xi Jinping has laid out through the GEI initiative, much less exercise sufficient control over its evolution, its likelihood is not as remote as one would imagine. Therefore the geo-political risks posed by the access to such an essential resource like electricity are very real and significant.

This assumes significance also in the context of China's similar policy in the ports sector.
In the context of Sri Lanka and the Hambantota port, The Times has a nice story about how Chinese investments in the port sector have both created military and strategic concerns as well as engendered indebtedness in the host country. The article highlights the extent of influence that Chinese were able to exert on the Sri Lankan government of Mind Rajapaksa as a quid pro quo for the port deal.

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