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China Develops $26bn Ultra High Voltage Electrical Grids to Stimulate Economic Recovery

China Develops $26bn Ultra High Voltage Electrical Grids to Stimulate Economic Recovery



China identified its first COVID infection from Wuhan in Hubei Province in December 2019. In an attempt to curb the spread of the virus, China in January 2020 locked down Wuhan and other most affected cities and ordered mandatory closure of the factories and businesses. Leaving a huge impact on the industrial and service sectors, COVID shrank the Chinese economy in Q1 2020 for the first time in the last decade. In March 2020, the World Health Organization has declared COVID as a pandemic, considering the faster transmission of the disease across geographies.

The output from manufacturing and construction sectors in China declined by 10.2% and 17.5% in Q1 2020 compared to the same period in 2019, and this decline led to an overall contraction in Chinese economy by 6.8% in Q1 2020 compared to last year. Given the huge uncertain outlook of the economy, China has taken determined efforts to unveil a comprehensive fiscal and monetary stimulus to revive its economy. Historically the export of manufactured goods and capital expenditure in the infrastructure sector has driven the growth in the Chinese economy. To restart the economy, China has already relaxed the workplace distancing protocols in March, encouraging factories to operate. Factories those resumed their operations are now are slowly ramping up their production in parallel to the rise in domestic demand. Despite this, indicators like private investment, consumption per capita and import & export are still largely affected by COVID. Hence, as a measure to provide further stimulus and secure investors’ confidence, China has introduced a “new infrastructure” strategy aiming time-bound development of state-of-the-art infrastructure.

Announcement of New Infrastructure Projects

Standing Committee of the Central Political Bureau of the Communist Party of China (Bureau) chaired by the Chinese President convened a meeting on March 5 2020 to discuss measures to offset the impacts of the pandemic. The Bureau decided that the country should accelerate investment in “new infrastructure”, instead of signing huge stimulus to businesses. The rationale behind the new infrastructure is to focus on projects that can be quickly realised, as well as that can drive innovation and facilitate the penetration of advanced technology in economically weaker areas. The Bureau categorized seven priority areas as new infrastructures, such as – 5G cellular networks, artificial intelligence, industrial internet-of-things, data centres, ultra-high voltage transmission grids, electric vehicle charging stations and inter-city high-speed rails. The share of investments in these proposed new infrastructure account to 14% of the total infrastructure investments scheduled for 2020 in the whole country.

Transmission Utilities to Develop 14 UHV Projects

Of the seven priority areas, ultra-high voltage (UHV) transmission projects and electric vehicle (EV) charging networks are opportunities for power sector investors and equipment suppliers. State-owned power transmission utilities viz. State Gird Corporation of China (SGCC) and China Southern Power Grid (CSG) will be owners and developers of these UHV projects. SGCC and CSG are the two largest transmission monopolies in China with a market share of 60% and 14% respectively. The two utilities had identified 14 projects for development in 2020, which shall employ High Voltage Alternating Current (HVAC) and High Voltage Direct Current (HVDC) technologies. The total size of investments in these UHV projects estimates to be $26.8bn in 2020; roughly, 1.2% of the total scheduled infrastructure investments in 2020 in the entire country. The details of the UHV projects and their investment size are listed in the table hereunder.

Table 1: China New Infrastructure Investments, UHV Transmission Projects, in 2020. Source: SGCC, CSG.

Of the above projects, SGCC has made significant progress in the first three UHVDC projects viz. (i) ±800kV Qinghai-Henan (ii) ±800kV Shaanbei-Wuhan and (iii) ±800kV Yazhong-Nanchang. SGCC placed orders on ABB Power Grids to provide the HVDC technology and equipment. Each of these ±800kV UHVDC transmission lines are designed to transmit 8 GW capacity. ABB shall be supplying HVDC converter transformers, components such as wall bushings, capacitor banks, dead tank breakers and HVDC switches to the projects. The construction of Qinghai-Henan (running 1,500kms) and Yazhong-Nanchang (1700kms) projects which were affected by lockdown, were resumed in mid-February; and the Shaanbei-Wuhan (1,100kms) project commenced construction at the end of February. Both SGCC and CSG have resumed all their projects, except for those in the epicentre of Hubei; and are very likely to commission all their new infrastructure UHV projects in 2020 and 2021. Major high voltage equipment manufacturers such as ABB, Siemens, GE, and local players such as TBEA, NR Electric and China XD Electric shall be seen competing for orders.

In EV charging space, China plans to invest around $1.5bn to install 0.2 million EV chargers throughout the country, of which 20,000 will be public charging points. SGCC announced to play a key role by investing $380mn to install 78,000 chargers across Beijing, Tianjin, Jiangsu and Qinghai provinces; installing around 53,000 chargers in residential premises and 18,000 at public places.

Industry Response So Far

The new infrastructure announcement in March had an effect on Chinese capital market, as investors welcomed the policy incentives for high technology penetration. Stocks related 5G, EV, IoT and mass mobility saw continued fund inflows after the announcement. The funds linked to the above stocks that are traded in exchange registered capital gains. For instance, the stock value of Shanghai listed China XD Electric reached its peaks for the year after the policy announcement. In second week of May, Tesla obtained around $565mn loan from Industrial and Commercial Bank of China to expand the production facility at Shanghai Gigafactory. Government and the state-owned corporations have responded by charting their capital expenditure plans for 2020 and 2021, to invest in the seven priority areas of the new infrastructure policy.

The massive construction of UHV projects has reinstated confidence among the developers of under-construction wind and solar energy farms, as well as attracting interests of investors in generation projects and other related social investments. The UHV projects are also expected to have positive implications on operational renewable projects as the energy curtailments will go down in future.

State Power Investment Corporation (SPIC), one of the five large utilities in China announced its plans to develop around 300 projects in 2020, with a total size of $14.5bn. A major 90% of investments will be allocated for clean energy and new technology projects such as solar, charging stations and hydrogen. This investment plan also includes 3 GW of solar capacities to be realized in 2020.

To encourage the infrastructure spend, the federal government intends to step up the issuance of special bonds by 40%, i.e. from $300bn in 2019 to $420bn in 2020. The federal government in January 2020 has issued special-purpose bonds worth $100bn and advised local governments to issue bonds. In addition, the government increased the allocation of funds (raised from new issuance of bonds) to infrastructure projects from 25% in Q1 2019 to 85% in Q2 2020.

Source: power-technology
Anand Gupta Editor - EQ Int'l Media Network
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