State Grid is most heavily involved in the mid and downstream parts of the electricity value chain, meaning that it has a limited footprint in the upstream side of the business – electricity generation itself. Instead, it dominates the transmission of electricity – transmitting it from the point of generation across long distances to major hubs – as well as the distribution of electricity – dividing it up from these hubs and then distributing lower voltages to households and industrial/commercial customers. For example, electricity is generated by the new Liaoning Hongyanhe Nuclear Power Plant owned by China General Nuclear Power Group, which is then connected to State Grid’s local subsidiary which is in charge of transmitting the electricity the 100+ kilometers to the city of Liaoning where it will reach substations that break down the electricity into lower voltages and then distribute them to customers around the city.
Historically, State Grid was heavily involved in the equipment manufacturing links on the electrical grid value chain. However, in 2021, the company announced that it would follow orders from Beijing to spin off many of its non-core business lines, officially done to create more competition in the equipment industry. Nevertheless, it remains to be seen how much of the equipment manufacturing State Grid does will fall under ‘core’ operations, as it is unlikely that the company will be keen to surrender the progress it has made in certain highly innovative types of equipment and software, particularly its Ultra-High Voltage (UHV) and smart grid technologies, both of which are central to the company’s ambitions in China, as well as overseas.
State Grid’s global portfolio
The company’s overseas assets and operations are primarily run by State Grid International Development CO. Ltd., which reports 42 billion USD in assets, 14 billion USD in revenue, and 19,076 employees worldwide. While this may seem like small potatoes compared to the scale of its size in the China market, it is still significant for an electrical grid utility company to have so many assets and so much revenue generated overseas in absolute terms.
One-to-one comparisons are tricky to make between State Grid and other electric utility companies as most of State Grid’s counterparts do more than just electricity transmission and distribution (many also generate electricity and also serve as gas utilities). While State Grid measures its revenue in the hundreds of billions, its customer base in the billions, and its employee headcount in the hundreds of thousands, its potential competitors (especially if broken down into just grid operations) are much more likely to count their revenue in the tens of billions, customer bases in the tens of millions (or less!), and employee headcounts in the tens of thousands.
Nevertheless, State Grid is an absolute giant compared to the next largest utility companies, let alone if those companies were to be broken down into just electricity grid operators. This is largely due to the size of the China market and the fact that State Grid runs 88 percent of the electrical grid. Other massive electricity markets, such as the India or the US, have heavily fragmented markets with dozens and hundreds of utility providers respectively. Even in markets where there are fewer companies, or even where there is a single state-owned entity running effectively the whole grid, such as France or Japan, the domestic market is simply too small relative to China’s.
State Grid’s overseas footprint is heavily driven by sales of equipment historically, but the company has grown as an investor, a project developer, and a manager of China’s cross-border electricity transfer lines.
State Grid’s tech ambitions could massively boost its competitiveness and allure as a grid operating partner
Rather unexpectedly for a SASAC-owned SOE, State Grid is actually a major innovator and is on the cutting edge of several key technologies that will be central to grid efficiency and decarbonization.
The first technology is ultra-high voltage (UHV) transmission. China has a long history of its energy resources being distant from its population centers. Historically, the coal that made up the lions share of China’s electricity generation was most abundant and exploitable in places like Shanxi and Inner Mongolia. Considering logistics costs of moving the coal over long distances to power plants near major population centers, it would be ideal to be able to place power plants near coal deposits to save on transportation costs and instead transmit the electricity over long distances instead. The problem is that the longer the transmission distance, the more electricity is lost as it moves through the cables. The same is historically true for many of China’s best hydropower producing regions, and its natural gas hubs – they were far from the biggest sources of demand.
This is where UHV aims to come in. Perhaps oversimplifying - under ideal conditions, UHV transmission systems allow for the transmission of electricity at high voltage across long distances with less waste than traditional transmission systems. The waste can be so high in traditional systems that past certain distances, the electricity loss is so great that it is not longer economically sound to sell at the consumption end.
This technology is not only important for China to overcome inefficiencies in its still coal-reliant electricity supply, but it could also be critical for making renewables function well in the market. UHV is considered by China’s electricity industry as the answer to the fact that in a given locale, the sun doesn’t always shine and the wind doesn’t always blow. Furthermore, China’s best regions in terms of solar and wind potential are, like its coal deposits, far from population centers. UHV is seen as the solution to this quandary, as it may allow for low-waste transmission of green energy across a massive, centralized transmission network.
All of that being said, there are some doubts and limitations to UHV technology which could limit its effectiveness as a solution. First, there is the necessary scale of demand to justify costs – much of the world lacks the population density of China, let alone its issue of proximity of consumers to energy production sites. Second, there is an ongoing debate in the energy industry about whether highly centralized or decentralized systems will be best for any given region to go green, and UHV only makes sense in highly centralized grids. Third, as UHV is only applicable in highly centralized grids, it is subject to security risks that are mitigated in decentralized systems – a hostile actor can do a lot more damage over a wider area to a centralized grid by hitting key bottlenecks either kinetically or through cyberwarfare. Only time will tell if UHV tech will be as much of a game-changer as State Grid thinks it will be, but to the degree that it is, it will empower the company as it expands globally.
The second emerging sector where State Grid is most innovative is in smart grid technology. The utility giant has established itself as one of the world’s 15th largest filers of AI patents globally in 2019 according to the WIPO – as a single company it has filed more AI patents than the entirety of the Chinese Academy of Sciences. As WIPO put it in 2019, “The State Grid Corporation of China is the clear leader in energy, with 647 patent families”1. Of course, quantity of patents filed does not inherently mean that the quality of those patents are on the cutting edge. Yet, State Grid is in a perhaps uniquely well-suited position to capture the high grounds in the various core technologies that together form smart grid systems.
Due to State Grid’s unusually massive scale in its home market, the company has an abundance of data points across the electrical grid that no competitor can come close to matching, particularly at the transmission and distribution parts of the grid value chain. There simply is no other utility provider with the same amount of grid data points anywhere in the world (as covered above, unified utility companies in smaller markets can’t compete for scale, and the next largest markets in India and the US have vast numbers of utility firms splitting up the market).
The AI systems underlying smart grid technologies rely on the largest possible datasets, with machine-learning essentially ‘training’ algorithms via exposure to data points – the more of which that it has, the more advanced that a program can become. That data is gathered at both the ‘user’ and ‘asset’ levels. The former collects extensive data on household and commercial/industrial usage trends across almost all of China – with the world’s largest population and much of its industrial base. The latter gathers data along the many different types of power lines, power stations, power converters, etc.
The plethora of data collection points naturally feed into the possible applications of smart grid technology. For example, training algorithms on the usage patterns across diverse geographies and times, under different periods of supply (solar or wind availability at any given moment, limitations to hydropower supply during periods of drought, etc.) and demand (heat waves, winter storms, holiday periods and the extended production cycles that happen before them, etc.) makes smart grid systems better able to predict when, where, and how much power is needed. That data can also be used to train systems to maintain the grid itself, as usage patterns and real time monitoring of equipment can help identify ahead of time when repairs are needed or components need to be replaced. These many layers of tech, and others, are part of a bigger ambition of State Grid to build a 泛在电力物联网 – a ubiquitous electricity internet of things.2