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China Southern Power Grid: T&D expansion in full force [free access]

December 1, 2012

China’s Twelfth Five-Year Plan emphasises objectives such as increased production of renewable energy, distribution generation, development of a smart grid and energy efficiency. These are meant to boost growth in the country’s power sector, where capacity addition in generation, transmission and distribution continues to chase a rapidly growing demand. Policy-wise, the stress on power transmission and distribution has been high in China. Two regional monopolies operate the country’s transmission and distribution networks—State Grid Corporation of China (SGCC) and China Southern Power Grid Company Limited (CSG). The latter, while smaller in scale than SGCC, has gradually come to the fore with its advancements in technology and investments in ramping up transmission and distribution (T&D) networks.

 

CSG, which formally came into being in December 2002, is responsible for the operation and management of the power transmission networks in the provinces of Guangdong, Guangxi, Yunnan, Guizhou and Hainan. By the end of 2011, the company’s transmission lines of 220 kV and above aggregated about 90,000 km. The asset base includes long-distance ultra high voltage alternate current (AC) transmission lines as well as hybrid operation of AC and direct current (DC) technologies. Power transfer capacity from the Yunnan and Guizhou provinces in the west to Guangdong in the east is estimated at 23,000 MW. Ultra high voltage DC (UHVDC) transmission lines constitute a key element in the company’s efforts to maintain efficiency in long-distance power transfer. In June 2010, CSG doubled the capacity of its UHVDC lines to 5,000 MW. The emphasis on high voltage technologies together with grid strengthening measures have helped reduce line losses in CSG’s network.

 

The State Electricity Regulatory Commission (SERC) oversees the regulatory policies and rate structure of the power sector. The National Development and Reform Commission (NDRC) is the overall planning authority for all major national level programmes related to energy. The wholesale and retail prices of electricity are determined and often capped by NDRC. The China Electricity Council, operating under the supervision of SERC, is responsible for coordinating the proper functioning of the power sector.

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Figure 1: Trend in line losses (%)

 img1_tsodec2012_466

Source: CSG Corporate Social Responsibility Report, 2011

 

The company operates as an integrated power utility, and power generation and distribution are part of its portfolio. The generation segment, managed under CSG Power Generation Company, has an installed capacity of 6,720 MW. Besides the power sector, CSG has branched out into other areas too. This includes subsidiary companies focused on energy efficiency, financial services, insurance and media. Progressive steps towards reforms in the Chinese power sector are however leading the utilities to rationalise their business segments and focus on core competencies. One such step was the recent separation of the construction business from the power transmission companies in China.

 

China’s state-owned Assets Supervision and Administration Commission separated the design and construction business from the power transmission companies, as a measure towards reforming the industry under stipulations of the State Council. Two new companies thus came into being—Power Construction Corporation of China (PowerCorp China) and China Energy Engineering Group Company Limited—which were to be solely funded by the Government of China. PowerCorp China subsequently signed a free transfer agreement for state-owned assets with CSG’s Guizhou and Hainan provincial power transmission companies.

 

Reforms in the critical area of pricing are also being pushed, where state control has strived to protect consumers from inflationary pressures. There are now gradual steps towards reforming power tariffs in China. Replacing the practice of levying a uniform charge, a tiered pricing structure was introduced for residential consumers. There is growing pressure on authorities to introduce market orientation in pricing, as generators have been incurring losses, which in turn results in increasing peaking shortages.  

 

Along with its focus on domestic operations, CSG has also extended its network for cross-border transactions. The company entered into cooperation agreements with its neighbouring countries and has engaged in cross-border power transactions to meet regional power shortages as part of larger goals of regional cooperation in economic growth. In particular, CSG has been playing an active role in the Greater Mekong sub-region, which includes Vietnam, Cambodia, Laos, Myanmar, Thailand and southern China. The company supplies power to eight provinces of Vietnam through three 220 kV and four 110 kV transmission interconnections. Power is also sold to Macau through three 220 kV and four 110 kV lines. To address power shortage issues in Laos, CSG has been supplying power through 115 kV transmission lines under a cooperation agreement between China and Laos. CSG has also been considering the development of transmission projects in Laos. The cross-border power transactions also include power imports by China. In October 2008, CSG was connected to Myanmar’s 600 MW Shweli River hydropower project and the company has been procuring power from the project since then.

 

Projects and Investments

 

In 2011, CSG committed CNY69.7 billion for the construction of transmission projects, while 11 projects were commissioned as per schedule. During the same period, a significant share of investments and projects were directed at augmenting and upgrading the company’s rural network. By the end of 2011, CSG invested CNY21.3 billion in this segment. This includes the addition of 2,727 km of transmission lines and 105 substations at the 110 kV voltage level. At voltages below 110 kV, the capacity addition comprised the construction of about 86,000 km of lines and over 20,000 substations.

 

Table 1: Major projects commissioned recently

Project

Date of commissioning

Huizhou Zhenzhou power transmission and power transformation project

May 16, 2011

500 kV Shenzhen Kunpeng–Bao’an power transmission project

June 12, 2011

500 kV Fengyi substation expansion project

June 26, 2011

220 kV two-loop project Guantang–Hongshi

June 26, 2011

500 kV Qingyuan Kuwan (Qingcheng ) project

June 28, 2011

Huizhou pumped storage project

July 11, 2011

220 kV Sanjiang power transmission and transformation project

August 5, 2011

500 kV Gongguoqiao power transmission project

October 17, 2011

220 kV Ruili power transmission and power transformation project

October 26, 2011

220 kV Fudu power transmission project

October 31, 2011

500 kV Huili power transmission and power transformation project

December 3, 2011

Source: CSG Corporate Social Responsibility Report, 2011

 

The trend in CSG’s grid investments indicates a rise in expenditure between 2007 and 2009, and a decline thereafter till 2011. Investments at 110 kV and below account for the majority share every year, highlighting the importance of rural power networks and the need for expanding access to electricity in CSG’s network provinces. Industry reports indicate that in the first half of 2012, CSG’s investments in grid projects declined by 9.4 per cent as compared to the corresponding period of the previous year. At CNY22.12 billion, the investment during the first half of 2012 met one-third of CSG’s total investment package for the year.

 

Figure 2: Trend in grid investments (CNY 100 million)

img2_tsodec2012_498 

Source: CSG Corporate Social Responsibility Report, 2011

 

CSG recently announced its plans to issue CNY5 billion in three-year maturity medium-term notes. The Agricultural Bank of China Limited and China International Capital Corporation Limited are the main underwriters for the issue. In May 2012, China Development Bank signed a strategic cooperation agreement with CSG to help raise USD19.1 billion towards financing transmission system strengthening projects. The funds will also support the West-East electricity transmission project and the company’s overseas assets.

 

Technology development has been accorded a high priority in CSG’s investment plans. Research and development works are conducted under the aegis of CSG Science Research Centre. Some of the major areas of focus include high voltage transmission systems (especially DC), smart grid technologies, electric vehicle charging technology, and energy storage technology among others.

 

Notable steps have been taken to develop and standardise 800 kV DC transmission systems. CSG recently compiled 11 national standards for ±800 kV DC power transmission equipments. These were approved and officially published by the State Committee for Standardisation. The company also recently launched a project to deploy flexible multi-terminal DC power transmission in Nanao County of Guangdong province. The region’s wind power potential has been restricted due to the limitations of AC transmission connectivity. The DC transmission project will enable a power transfer capacity of 200 MW and address the technical bottleneck of AC transmission connections. The project, which is scheduled for commissioning by December 2013, is expected to yield other technological breakthroughs in areas such as distributed renewable energy, islanding of power supply and city power grid supply.

 

On January 23, 2011, a CSG MW battery energy storage station was integrated into the grid, marking an important step towards such storage technology. The station has a designed capacity of 10 MW, and is characterised by key features such as fast mode alienation, flexible operation, low operation and maintenance costs, and scalability. The aim of this project is to significantly improve power reliability and enable the company to integrate large-scale renewable energy projects into the transmission network.

 

The growing share of renewable energy and its associated challenges of intermittency is promoting the market for smart grid technologies in China. CSG’s initiatives in smart grid technology are related to its efforts in areas of energy storage, distribution and control systems for enabling electric vehicle charging.

 

In December 2011, two key projects of CSG, meant to facilitate west-east transmission, officially commenced construction work. One is the 1,434-km long Nuozhadu ±800 kV DC power transmission project, and the other is the 1,251-km long Xinuodu double circuit ±500 kV DC power transmission project. The Nuozhadu project connects the hydropower generation capacity in Puer (Yunnan province) to Jiangmen (Guangdong province) and will enable a power transfer capacity of 5,000 MW. The Xinuodu project connects the upcoming hydropower capacity in Zhaotong to the Guangdong province. Together, these projects involve an estimated investment commitment of CNY 33 billion, and are expected to increase the power transfer capacity by 11.4 GW on the West-East power transmission route. The projects are due for commissioning in 2014.

 

In March 2011, CSG signed the Twelfth Five-Year Plan Power Development Strategic Cooperation Framework Agreement with the Hainan provincial government for proposed investments in power transmission infrastructure. As per the agreement, CSG will invest about CNY23 billion in the Hainan power transmission network. CSG will invest CNY29.2 billion for the power networks of Shenzhen city in Guangdong Province under the country’s Twelfth Five-Year Plan. Rural grid strengthening is another area of focus during the Plan period. The rural transmission networks usually operate at voltage levels of 110 kV and below, and are important for ensuring access to power. But these networks also involve costly upgrades. CSG is slated to invest about CNY111 billion for rural grid strengthening. As such, CSG has earmarked an investment of CNY400 billion for capacity addition till 2015.

 

China’s Twelfth Five-Year Plan sets the direction for future investments in power transmission. From the company’s perspective, this translates into allocation of resources towards the goals highlighted in the Five-Year plan. This includes integration of clean energy in the grid, optimising the share of coal-based power generation, rational allocation of peaking power, developing distributed energy sources and deployment of smart grid technologies. Studies carried out by the State Grid Energy Research Institute and other agencies project an increase in the share of renewable energy from 26 per cent in 2010 to 34 per cent in 2020 in China. Further, to reduce the dependence on coal-fired generation capacities, the Plan period is likely to see a significant emphasis on initiating hydro and nuclear power projects. All this will need to be factored into transmission planning exercises and CSG is taking all the necessary steps to ensure that the targets are met.