The Saudi Electricity Company has signed a $1.1bn deal with State Grid Corporation of China (SGCC), to provide it with 10mn smart meters in Saudi Arabia. Part of the Belt and Road Initiative, China’s strategic plan to invest in infrastructure globally, this deal was swiftly followed by SGCC taking a 49% stake in Oman Electricity Transmission Company for a rumored $1bn.
On the one hand, SGCC is simply looking to expand its reach as the world’s largest utility, and become a valued technology and service provider for other utilities and grid operators globally. On the other hand, SGCC is clearly a vehicle for China’s geopolitical ambitions, with Eurasia, the Middle East, and Africa key expansion targets.
SGCC says this is the first time its smart grid business has entered the global market, but the company has stakes in many global firms. As of 2016, it had spent $8.4bn in several deals, to buy large stakes in energy firms in Belgium (Eandis), Brazil (Energia), Greece (ADMIE), Italy (Terna), Portugal (REN), the Philippines (NGCP), and Australia (SP AusNet).
However, the wider Chinese foreign investment craze slowed significantly, due to government scrutiny, and so it only spent $1.5bn in 2017 and 2018. It is now kicking off 2020 with that purchase in Oman, and has said that it wants to hold $30bn to $50bn in foreign assets in 2020 – and the range there is indicative of how much cash it has to throw around, to this end.
SGCC is essentially planning to build a global energy grid, mostly focused on distributing electricity, using its immense reach to have global sway on the markets. When making the ADMIE purchase in Greece, SGCC President Kou Wei alluded to the wider plan, saying that “Greece, where Asia, Europe, and Africa converge, is strategically important and will accelerate our foray into Europe.”
The Chinese government’s foreign policy is likely going to influence the countries in which SGCC splashes its cash. The Belt and Road Initiative ostensibly wants to lift all boats on a rising tide, building ports, rail lines, and roads in developing markets – and boosting Chinese influence. However, it has been criticized for putting many of these countries into unaffordable debts, which of course can be defaulted on to leave China holding the assets it built. To this end, the initiative is viewed skeptically by those outside China’s sphere of influence, and SGCC is an important part of this geopolitical ambition.
SGCC has talked about building a global energy grid in the past, and key to this is its use of Ultra High Voltage (UHV) transmission systems, which carry electricity at voltages north of 800 kV, up to 1,000 kV. Most grids use Extra High Voltage (EHV) for transmission, which ranges from 350 kV up to 800 kV, but typically in the 400-500 kV region.
Internally, China has a number of major UHV connections, since SGCC started construction back in 2012, and now that much of China is covered, SGCC will want to expand outwards. SGCC has said that UHV enables five times the power transmission capacity per line, as well as six times the range of EHV lines. Of course, stepping the voltage up and down from UHV is a more complex process.
We covered SGCC’s smart grid upgrade plan, announced back in November, called the Ubiquitous Power Internet of Things, which aims to “ unite all parties to establish an energy ecosystem featuring inclusive development, shared governance and mutual benefit, jointly promoting the Internet of Things in Electricity (IoTE).”
Smart cities are cited as one of the main motivators for the project, but this is a national infrastructure project on a scale that dwarfs most western initiatives. In this new venture, the smart grids are going to inextricable from the smart cities they power, and so there is going to be a lot of two-way traffic between these systems.
The SCMP cites a prediction from Northeast Group that says China is expected to spend $77.6bn on smart grid infrastructure over the next ten years. State Grid and the government have not put a figure on it, and given the overlap between many of the state-owned assets and organizations, calculating that number could provide a very different equivalent in a western market – much, much higher.
In Saudi Arabia, SGCC’s China Electric Power Equipment and Technology Company subsidiary is the one doing the work. It will be installing 5mn of the 10mn meters, in the western and southern regions, while local MNO Mobily and Al Fanar Construction will deploy the rest. Some 3.5mn meters are going to be bought from local manufacturers, according to the Saudi Stock Exchange. Notably, SGCC reckons it will finish its install in 2021, while Mobily and Al Fanar are scheduled to complete in 2023.
In Oman, SGCC signed an agreement with the Oman Electricity Holding Company (Nama), to buy 49% of the Oman Electricity Transmission Company (OETC) – the national grid operator. This is pocket change for SGCC, at around $1bn according to local sources – although terms haven’t been made public.
Nama has been looking to privatize its holdings, and so SGCC’s investment will be welcome. Nama was also planning on selling stakes in Muscat Electricity Distribution Company and its three other supply and distribution companies. The Omani government is trying to address a budget deficit, and selling off assets to foreign investors is part of the National Program for Fiscal Balance.