BEIJING (Reuters) - China's State Grid Corp STGRD.UL is lobbying hard for approval of a $250 billion upgrade plan that it says would make the nation's grid an international trailblazer, but which critics say is too costly and could expose the system to blackouts.
The world's No.2 economy has struggled to expand its grid fast enough to keep up with demand after a decade of explosive growth. Capacity needs to grow to 1,500 gigawatt (GW) by 2020 from 1,060 GW at the end of last year, according to the Energy Research Institute, a think-tank at China's top economic planning agency.
As China's leaders met last week in Beijing for a once-in-a-decade transition of power, Liu Zhenya, the politically powerful chief of the world's largest utility, pushed the nation's power brokers to approve the monumental plan to upgrade the transmission system. The price tag is over four times that of the Three Gorges Dam, which was already one of the nation's most expensive projects.
Liu is calling for China's leaders to agree to crisscross the country with as many as 20 ultra-high voltage (UHV) power lines, dubbed power corridors, by 2020, industry sources say. The lines would connect China's disparate regional grids and help resolve China's geographical energy imbalance, Liu says.
Critics say Liu is aiming to strengthen his and the state grid's position, already the world's seventh-largest company, as much as to strengthen the network that supplies electricity.
Analysts also question whether the huge costs will deliver commensurate benefits.
"The UHV projects are massively expensive and, together with many observers, I am not convinced of the projects economics and not convinced the projects make sense from an energy supply security perspective," said Joseph Jacobelli, a Hong-Kong based independent energy analyst, who was formerly head of global cleantech research at HSBC Holdings PLC.
Most of China's coal, natural gas and renewable energy resources lie far from the cities in the east and the south, and hauling coal from the mines to power stations on the other side of the country ties up more than 60 percent of China's rail capacity.
The UHV lines, which are designed to minimize energy loss during transmission, would allow China to build power plants near coal mines or gas fields before sending electricity rather than coal across country. This would free up rail capacity and lessen the need to widen the railroad network.
Analysts estimate that the full UHV project would cost up to $250 billion, making it China's most expensive energy infrastructure project to date.
The State Grid is a powerful player in Chinese politics, transmitting and distributing power to 1.1 billion people across close to 90 percent of China. Huge infrastructure projects have in the past got people noticed inside the ruling Communist Party, but have left behind mixed economic blessings.
Liu's lobbying goes to the heart of a struggle in Beijing between those that want to reform powerful state monopolies, and the monopolies themselves, who are looking to consolidate and strengthen. China's outgoing premier, Wen Jiabao, vowed earlier this year that Beijing would push ahead with monopoly busting.
It is unclear if China's power demand growth would require the proposed network, critics say. As China moves energy-intensive industry inland and west, electricity demand in the east and south may not grow to the extent envisaged by the plan, a Beijing-based regulatory source familiar with the plans said.
"If that's the case, those UHV lines may not get approved," said the source, who spoke on condition of anonymity as he was not authorized to discuss the proposal with media.
The National Development and Reform Commission (NDRC), China's top economic planning agency, is assessing Liu's proposal and may make a decision around the end of the year, the regulatory source said.
Critics say UHV technology is immature and largely untested. China is the only country embarking on large-scale construction of such power lines.
"Connecting regional power grids by UHV transmission line has high risk of leading to national blackouts," the European Union Chamber of Commerce in China said in a report in September.
China's regional grids are too weak to receive the large amounts of power transmitted via UHV lines, analysts say.
If all the lines proposed by State Grid are built, China's existing regional grids would be strongly interconnected. That would allow power to be sent from one part of the country to another but could also increase the system's vulnerability to black outs caused by glitches to the UHV lines, they warn.
"You have to strengthen the receiving part first," said Michael Thomas, partner at Hong Kong-based energy consultancy, The Lantau Group.
Lantau Group and Macquarie Equity Research said in a joint report in July that there is little cost advantage to using the UHV lines. The cost of generating power from coal for delivery via UHV lines is 256.82 yuan ($41.21) per megawatt hour, compared to the 262.86 yuan cost for transporting coal over rail for power generation, the Lantau Group estimates.
A State Grid spokesman said UHV also holds the benefit of maximizing China's renewable energy potential and cutting emissions. China has the world's largest wind power capacity, but a third of it sits idle as State Grid struggles due to transmission problems. State Grid argues UHV lines can absorb the intermittent power from renewables such as wind and solar, and so would form the backbone of a future smart grid.
Even if Liu fails to persuade China's new leaders to back the full expansion, the world's top energy consumer has already approved part of its plan. Two lines have already been built and four more approved, and the Grid says they have operated well.($1 = 6.2291 Chinese yuan)
Editing by Simon Webb and Ed Davies