Cracking China’s Power Sector

There is no more attractive market for a company that provides goods and services to the power sector than China’s electricity industry. It is big, fast-growing and open to new ways of powering the Chinese economy. Moreover, the Chinese companies that are building out China’s power generation and transmission industry are well positioned to do the same in Africa, Southeast Asia, South America and other emerging markets, and will quickly become the leading global players in their fields.

China’s power sector consists of power generation companies that transform primary energy to electricity, and electric grid companies that transmit electricity and distribute it to commercial, industrial and individual users. Unlike many industrial and consumer industries where private and foreign-invested companies have a large share, though, China’s power sector is dominated by big, bureaucratic state-owned or controlled companies.

Of the more than 4300 power generation companies in China that have capacity of 6,000 kilowatts and above, approximately 90 percent are state-owned, or companies with a majority of their shares controlled by the state.

Among them, five corporations directly under the central government account for approximately 45 percent of China’s installed capacity. The big five are: China Huaneng Group; China Datang Corporation; China Guodian Corporation; China Huadian Corporation; and China Power Investment Corporation. Other power generation companies under China’s central government approximately account for over 10 percent of the country’s installed capacity, and local power generation companies account for nearly 40 percent.

In order to transmit electricity around the country, there are 38 power transmission companies at the central government and provincial levels. Of these, 31 are provincial and 7 engage in cross-province power transmission. The State Grid Corporation of China covers 25 provinces, municipalities and autonomous regions, while the China Southern Power Grid Co., Ltd. covers five. Provincial level power transmission companies, such as Inner Mongolia Power Company, operate locally and independently.

To put in perspective the size of the companies operating in China’s power sector, State Grid ranked 8th on the 2010 Global Fortune 500, with $184.5 billion in revenues. Together, State Grid and South Grid invested RMB 1.45 trillion ($218 billion) in transmission facilities during the eleventh five year plan just ended.

The focus of China’s investment in its power sector shifted from power generation in the tenth five-year plan, to the construction of transmission facilities in the eleventh five-year plan. Investment shifted to such aspects as improving system automation, digitalized grid construction, and reliability and safety. China is investing billions of dollars in so-called smart grid technology. The term “smart grid” refers to the application of various digital technologies to, among other things, modernize and automate transmission and distribution assets to anticipate and respond to system disturbances, enable greater use of variable energy sources–including renewable energy–and provide needed information and capability for customers to control their energy consumption effectively. State Grid, which is responsible for 80 percent of China’s power, has announced plans to have its smart grid operational by 2020.

China’s grid, however must not only be “smart,” but it must also be “strong” in order to get electricity from power generation plants in the interior to the coastal cities where much of China’s electricity usage occurs. That is the reason why the current emphasis in China is on the construction of 500kv extra-high-voltage lines and long-distance power transmission.

As in most industries, China’s leading companies, whether state or privately owned, are not content to confine their activities to China and are expanding abroad. On December 21, 2010, China’s State Grid announced a $1 billion investment http://theenergycollective.com/index.php?q=aelstaff/49261/china-s-state-grid-announces-1-billion-investment-brazil in Brazil, buying 7 Brazilian power transmission companies.

Any Western company supplying technology, equipment and/or services to the power industry has to consider China’s power sector as a key target market. But, navigating the large, bureaucratic companies that dominate the industry in China, as well as protecting intellectual property, are difficult challenges for even the world’s largest companies.

In a bit of a commercial for JFP Holdings, I’m pleased to report that we have developed some interesting ways to help our international companies penetrate this large but difficult market. We invite any MTD readers who work for, or know of, a company that may need assistance in this area to contact us at Info (at) jfpholdings.com to learn more about what we are doing.

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