Key Takeaways
China’s state-owned power monopoly plans to spend 4 trillion yuan ($574 billion) on grid upgrades over the next four years, focusing on controversial ultra-high voltage lines.
The investment plan persists despite a push from state planners to build a “smarter,” more flexible grid better suited for integrating renewable energy, according to a new report from Gavekal. “The next five years will see a struggle between state planners, who want to focus on making the grid smarter, and state-owned behemoth State Grid, which simply wants to keep building ultra-high voltage (UHV) lines,” Damien Ma, an analyst at Gavekal, said.
The spending comes as China’s power capacity continues to grow at a staggering pace. The country produces 40 percent more power than the U.S. and European Union combined and last year added more capacity than India’s entire installed base. The grid relies on 1,000 kV UHV lines to transmit power from resource-rich western provinces to populous eastern cities.
The core issue is a conflict between integrating renewables and State Grid’s business model. While Beijing aims for a market-based system with 70 percent of electricity priced on supply and demand by 2030, State Grid’s monopoly on long-distance transmission allows it to impose arbitrary fees on UHV lines. A more transparent, flexible grid would threaten this revenue stream, Ma notes. State Grid is still planning a dozen new UHV lines, ostensibly to integrate renewables.
The massive capital expenditure by State Grid highlights the growing global challenge of upgrading power infrastructure to handle new demand from artificial intelligence and the energy transition. The internal conflict in China could delay its renewable energy goals. Investors will watch for any signs of President Xi Jinping intervening to force State Grid to align with market-oriented reforms.
This article is for informational purposes only and does not constitute investment advice.
