China’s power grid equipment sector is set to boom as state-owned utility firms boost spending amid rising electricity demand and a renewed call from Beijing to better incorporate the country’s record-breaking renewable energy generation capacity into the power system.
China Southern Power Grid, one of two state-owned grid companies, has budgeted 173 billion yuan (US$24 billion) for capital expenditure in 2024, up 23.5 per cent year on year and a significant acceleration compared with a 12.1 per cent increase in 2023, state media outlet People’s Daily said.
The money will flow mostly to 194 energy-related projects in power grid development, pumped-hydro storage and additional energy storage capacity, the report said.
“We attribute the capex growth acceleration to facilitating more renewable project addition,” Pierre Lau, head of Asian utilities and clean energy research at Citi, said in a report on Monday. The other state-owned utility, State Grid, is likely to boost its capital expenditure for similar reasons, the report added.
Analysts are positive on China’s power equipment sector because rapid growth of wind and solar capacity has led to increased rates of power curtailment – when more power than the grid can handle is being generated. This means investments in grid capacity, smart grid infrastructure and energy storage must accelerate to keep up.
China’s National Energy Administration (NEA) published a notice on June 4 that called for ensuring the consumption and high-quality development of renewable energy. It highlighted the importance of management and support for transmission projects, especially for utility-scale wind and solar bases, and specifically pointed to 70 transmission and substation projects that are due to start operations or begin construction in 2024.
The notice reflects Beijing’s aim to accelerate the implementation of better transmission networks, according to Dennis Ip, an analyst at Daiwa Capital.
Shares in companies in the sector surged following the notice. Shanghai-listed Henan Pinggao Electric, a major manufacturer of electric power transmission and conversion equipment, has surged 25 per cent this month while Shenzhen-listed XJ Electric has added nearly a tenth from last month’s levels.
Demand will be strong for high-voltage transmission equipment, including transformers and converter valves, as well as energy storage systems, Ip said.
China’s rapidly growing power demand, driven by electrification in sectors including transport and manufacturing, as well as the rise of online services and power-hungry artificial intelligence products, will also boost grid equipment suppliers, according to Citi’s Lau.
The US banking group said China’s power demand will grow 7.5 per cent this year and 7 per cent in 2025, compared with 6 per cent last year.
China’s capital expenditure on the grid will rise at least 7 per cent year on year in 2024 to 565 billion yuan, including 230 billion yuan for ultra-high-voltage projects, Citi said.
However, the sector has less competition and therefore a lower risk of the overcapacity seen in China’s solar panel and wind turbine sectors, according to Daiwa’s Ip.
“High-voltage power grid equipment has a higher entry barrier given the tender list has limited suppliers for major grid operators including State Grid,” he said. “Many of them are state-owned companies whose capacity expansion plan is not as aggressive as private companies, and hence there is less chance of a huge overcapacity.”