Abstract

The smart grid deployment in China is considered to be a comprehensive grid transformation project starting from the bottom up. UHV grid is used to supplement the existing grid in order to solve transmission inefficiency and depletion problems resulting from electricity transmission over long distances. Looking at the UHV projects that are announced or are under planning process, it is observed that the UHV projects cover remote areas, including western Mongolia, Qinghai, Tibet, Yunnan, and areas in Northwestern China. It is expected that SGCC aims to take this opportunity to construct a complete grid system in remote areas that lack sufficient energy supply. As per the smart grid project, the nationwide smart meter installation will not begin until infrastructure construction is completed to a certain degree. Therefore, in the short and mid terms, grid equipment is expected to be in high demand in order to meet the urgent needs from the nationwide UVH construction. In 2009 alone, China spent more than 200 billion RMB (US$29.9 billion) in UHV investment. Therefore, business opportunities brought by UVH investment is expected to be significant in the next two to three years.

In terms of smart grid planning in China, the bids released at the end of 2009 were for approximately three million units of smart meters, however, it is estimated that there are more than 400 million households in China. Since technical standards are not fully devised yet, pilot testing is deployed for the short term. Not until technical standards are introduced at the end of 2011, and the initial stage of UHV grid project is completed, will the market see significant demand. As it is observed that the Chinese smart grid equipment manufacturers are aggressively preparing for the development of related products, business opportunities brought by smart grid are expected to be great.

Requirement for Autonomous Equipment Development Prevents Foreign Companies from Entering into the Chinese Market

In the past, in order to support local electricity and grid industries, when bids for electricity and grid equipment were released, the Chinese government always asked a certain percentage of products must be manufactured domestically: for example, 70% for wind power equipment, 75% for nuclear power equipment, and 60% for grid equipment. Although several related restrictions have been lifted as per the trade agreement signed with the United States, in terms of the grid industry as a whole, the unwritten rule of using domestically manufactured equipment always takes effect in grid bidding projects. As per the restructuring and revitalization plans for the equipment manufacturing industry released by the National Development and Reform Commission, it is observed that the Chinese government has been aggressively encouraging smart grid vendors to conduct R&D on smart grid-related equipment through granting subsidies and tax cuts. The Chinese government's move is expected to enhance China's autonomy in smart grid equipment manufacturing.

In addition to the efforts made by the government, SGCC has also begun developing the smart grid standards. When bidding for equipment supply in the future, all vendors must abide by the rules set up by SGCC, and the products manufactured by vendors have to meet SGCC's specification requirements and pass SGCC testing. SGCC's moves not only allow Chinese vendors to begin R&D in advance, but also benefit vendors that belong to the SGCC group because the technologies will be directly transferred to them. When entering the Chinese market, foreign vendors have to face challenges, such as the Chinese vendors' cost advantages and price competition. Moreover, in terms of product standards, since all products supplied for smart grid construction in China have to meet standards released by SGCC itself, these standards are considered to serve as thresholds for non-Chinese vendors trying to enter the Chinese market.