Power generation in Europe gets a Chinese twist

Aug 11 2014, 01:37 IST
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SummaryThe European Commission has long wanted the continent’s power grids to work in unison for reasons of efficiency and supply security

The European Commission has long wanted the continent’s power grids to work in unison for reasons of efficiency and supply security, so far to little avail, but a regional power network could soon be a reality — courtesy State Grid Corporation of China (SGCC).

While Europe’s utilities have met hostility to cross-border forays and been outbid by infrastructure funds, SGCC, the world’s largest utility by revenues, with its deep pockets and reputation for hands-off management, has had an easier ride, buying minority stakes in Portuguese and Italian grid operators and pursuing designs on Greece and Spain, too.

If all goes to plan, it would become the first utility to build a major regional electricity grid portfolio, a feat that the European Commission had hoped Europe’s big grid operators would have achieved in the five years since it forced the separation of the grids from power production to increase market competition. For wholly state-owned State Grid, which distributes electricity to 1.1 billion people across 90% of China, the appeal of the consistent, regulated income from European power assets is obvious.

A State Grid official familiar with its overseas strategy said projects abroad typically yield high single-digit to double-digit returns, compared with low single digits at home. Its relatively low yield requirements give it an edge over Western infrastructure funds and European sector peers.

In a recent statement, an official in State Grid’s international business department said it was actively investing in regulated

electricity assets and realising steady returns. “When we make overseas investment, we are not doing charity,” he said.

As State Grid builds up its portfolio, it could start thinking about linking up its assets across the region; the ownership of several grids by one operator allows easier cross-country power-load balancing, so it doesn’t get caught out by peaks in one area and can shift power within its own network rather than being forced to parlay with a competitor.

In 2012, State Grid bought 25% of Portuguese grid operator REN, then last month it entered Italy with a deal to buy 35% of CDP Reti for 2.1 billion euros.

CDP Reti owns 30% of gas transport group Snam and is set to receive a similar stake in power grid Terna.

State Grid, with Terna and Belgium's Elia, is also bidding for 66% of Greek grid operator ADMIE, sources told Reuters in May, and is interested in bidding for German utility E.ON’s northern Spanish grid, which serves

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