Thursday, February 26, 2009

Chinese utility tries to join electricity pioneers

BEIJING (AP) — As companies abroad slash spending to ride out a global slump, China's biggest utility is pouring money into the multibillion-dollar field of electric power transmission.

State Grid Corp. says it began operation in January of a 1 million-volt commercial power line, which is much more powerful than the 765,000-volt systems used in the United States and elsewhere. It said "ultra-high voltage" transmission systems will be able to link cities to distant hydroelectric dams from Brazil to Africa.

"This is a milestone in the history of the power industry," boasted a State Grid vice president, Lu Jian.

The effort reflects Beijing's broader ambition to transform China from a low-cost manufacturing nation into a creator of profitable technology — a step it must take if it is to continue growing, economists say.

"Chinese players are indeed climbing up the technical ladder," said David Xu, director of McKinsey & Co.'s Asia-Pacific power consulting group. "They understand that just competing on a cost basis is not going to be sustainable."

New, powerful transmission systems may also help Beijing clear smog from China's cities by locating new coal-fired power plants closer to mines instead of in urban areas.

Little known abroad, State Grid is one of the world's biggest companies, ranked 24th on Fortune magazine's Global 500 list last year with $133 billion in 2007 revenues. It is flush with cash even as a global economic downturn forces multinational corporations to cut payrolls and spending.

State Grid operates the vast network of power-distribution lines across 26 of China's 32 provinces and regions and is expanding. The company signed a $3.9 billion, 25-year contract with the Philippines in January to run that country's power grid.

The appeal of ultra-high-voltage transmission is its efficiency over long distances, according to experts. Power, measured in kilowatts, is a function of voltage multiplied by current. That means a higher-voltage line can carry less current, which reduces energy losses, yet still deliver the same kilowatts.

Developing the technology could help China compete in a global market for power transmission equipment that Goulden Reports, an industry research company, says should grow to more than $140 billion in annual sales by 2015.

Russia, Japan, Italy and others have experimented with ultra-high voltage but none uses such high voltages commercially. The biggest U.S. power company, American Electric Power Inc. in Columbus, Ohio, says it successfully tested a 2 million-volt line but has no plans for regular use.

Utilities in the West face a host of hurdles in building powerful transmission lines, from lawsuits to state utility boards, each with different demands.

State Grid says it will spend up to 100 billion yuan ($14.6 billion) over the next three to four years on ultra-high-voltage lines to link Beijing, Shanghai and other eastern cities to dams in the southwest and power plants in the coal-mining north.

The company says if it succeeds, the technology could be sold abroad. Some equipment was supplied by Siemens AG of Germany and Switzerland's ABB Ltd., but State Grid says most was developed in China by more than 100 domestic producers.

"We will be very pleased to share the technology with the international market," said Cheng Mengrong, deputy director-general of State Grid's international department. She said possible customers include India, Brazil and South Africa.

Beijing hopes eventually to become more than a source of labor to build the world's DVD players and other high-tech goods, with most of the profits from those operations flowing back to the United States, Japan and other countries.

Economists say China must move into higher-technology fields if it wants to keep growing as rising wages erode its dominance in low-profit, labor-intensive industries.

The Chinese effort has yet to produce dramatic successes despite increased spending on areas ranging from semiconductors to genetics.

State Grid's first ultra-high-voltage line, which cost 5.8 billion yuan ($820 million), delivers power from Shanxi province in the north to the populous central province of Hubei, 640 kilometers (400 miles) away.

The utility is building two longer cross-country lines, linking dams in Sichuan province in the southwest to Shanghai and to Jiangsu province in the east, at a total cost of 40 billion yuan ($5.8 billion), said the company's executive vice president, Shu Yinbiao. He said more lines were awaiting government approval.

Experts say such a system could find a market as the United States and others expand use of solar, wind and hydropower.

U.S. states are requiring utilities to use more renewable energy, which might require linking California or East Coast cities with distant dams or wind turbines, said Richard Lordan, technology director for power delivery for the Electric Power Research Institute, a utility-supported U.S. group.

"If you have to supply 15 percent renewables in some of these states, you are going to have to get it from wind in the Midwest," he said. "I could envision some high-voltage from the wind centers to the load centers."

The challenge lies in developing competitively priced high-voltage cables, transformers and other equipment, said McKinsey's Xu. China's huge market will give its producers an edge by creating economies of scale and driving down costs.

"China would have a huge cost competitiveness compared with someone else who wants to develop the technology," he said.

If China develops a fully fledged system, that could help the technology win acceptance abroad, Xu said.

"I think it would definitely provide a more credible, safer, more reliable technology to the world," he said.