Analysis | How is the UHV equipment market segmented? How are capital expenditures typically allocated?

Uneven distribution of energy resources and the geographical mismatch between energy supply and demand constitute a common energy challenge facing the whole world. Meanwhile, mounting environmental pressure and higher requirements for power quality arising from human activities have accelerated electrification as well as the interconnected and large-scale development of power grids. Interconnected large power grids can effectively address the above challenges of energy demand and environmental pressure, making them an inevitable path for power grid development across countries.

China boasts a vast territory and abundant natural resources, yet it also grapples with the imbalance between energy endowments and economic development. Two-thirds of China’s coal resources are concentrated in Shaanxi, Shanxi and Inner Mongolia. Around 80% of hydropower resources are located in Southwest China, and most wind and solar resources suitable for centralized development lie in Northwest and Northeast China. By contrast, roughly 70% of the country’s electricity demand comes from 16 provinces in Eastern and Central China.

The 14th Five-Year Plan period marks a vital stage for China to scale up the West-to-East Power Transmission initiative, raise the consumption ratio of clean energy and consolidate energy security. Power grid enterprises shoulder key missions: driving domestic demand through investment, building robust power grids, and boosting the capacity of western green energy transmission. They will vigorously push forward the approval and construction of ultra-high voltage (UHV) transmission corridors. The UHV equipment sector is set to enter a stronger demand cycle.

Beyond the nearly RMB 100 billion worth of key projects announced for 2020, State Grid Corporation of China unveiled work plans for preliminary studies on five UHV AC and two UHV DC projects in March. Combined with four UHV AC and three UHV DC projects tendered in 2019, demand for power transmission and distribution equipment in China is expected to approach RMB 50 billion over the next two years. Annual new UHV construction projects in China are projected to hit a record high.

Given the substantial geographical imbalance between China’s energy endowments and power load centers, constructing multiple long-distance UHV transmission corridors as soon as possible to deliver electricity from hydropower bases in Southwest China, renewable energy bases and coal power bases in Northern China to power load centers in Eastern China constitutes a key measure for China’s energy transition. Accordingly, UHV transmission projects serve as the lifeline safeguarding China’s energy security in the new era.

During the 14th Five-Year Plan, China’s UHV construction will mainly focus on advancing West-to-East Power Transmission and building the interprovincial loop grid in Central China. Power grid construction in China features strong counter-cyclical attributes, delivering notable contributions to economic growth and employment, and thus acts as an important tool for macroeconomic regulation. Against the backdrop of the COVID-19 pandemic weighing on the macroeconomy, alongside the nearly RMB 100 billion key projects announced for 2020, State Grid released preliminary work plans for five UHV AC and two UHV DC projects this March. Together with four UHV AC and three UHV DC projects tendered in 2019, demand for transmission and distribution equipment in China is estimated to reach nearly RMB 50 billion in the coming two years, with annual newly-started UHV projects expected to set a new historical record.

Looking at historical performance: How will market shares be divided in the UHV equipment market?

Based on incomplete statistics of tender results for transmission and distribution equipment under four UHV AC and three UHV DC projects in 2019, converter transformers and converter valves accounted for the largest procurement volume, totaling nearly RMB 14.5 billion and representing over 50% of total spending. Leading suppliers include Xi’an Electric, NARI Technology, TBEA, Shandong Electrical Engineering & Equipment, Baobian Electric, Pinggao Electric and XJ Electric. The top two players each captured more than 15% market share and emerged as the biggest winners; the top six companies collectively secured over 70% of the market. DC power transmission and relay protection segments feature the most concentrated competition landscape, which will deliver substantial earnings growth for leading specialized manufacturers.

Prospects for UHV Development: The Lifeline of China’s Energy Security

Uneven distribution of energy resources and geographical mismatch between energy supply and demand are shared energy challenges worldwide. At the same time, growing environmental constraints and rising demand for higher power quality driven by social activities have boosted electrification and the interconnected, large-scale development of power grids. Interconnected large power grids can effectively mitigate the above challenges related to energy demand and environmental pressure, hence becoming an inevitable direction for power grid development globally.

China covers a vast land area with rich natural resources, yet it faces an unbalanced layout of energy endowments and economic development. Two-thirds of national coal resources are concentrated in Shaanxi, Shanxi and Inner Mongolia Autonomous Region; 80% of hydropower resources are found in Southwest China; most wind and solar resources available for centralized development are distributed in Northwest and Northeast China. Nevertheless, around 70% of national electricity demand is generated in 16 provinces of Eastern and Central China.

To tackle these challenges, China initially built coal-fired power plants within load centers, transporting coal over long distances for on-site power generation to boost local power supply.

However, with rapid economic expansion in Eastern China, electricity demand kept rising. Continuous construction of coal-fired power plants across eastern provinces imposed massive emissions pressure on local regions. At one point, sulfur dioxide emissions in East China reached 20 times the national average.

A second solution to ease power supply pressure in Eastern China emerged: transmitting power from hydropower bases in Southwest China, renewable energy bases and coal power bases in Northern China to Central and Eastern China via long-distance UHV transmission corridors. As the distances between China’s energy bases and load centers continue to widen and power demand surges, the transmission capacity of power grids with conventional voltage levels can no longer meet requirements. Building large-scale synchronous UHV power grids represents the optimal solution to satisfy China’s power demand, guarantee energy security and independence, and advance environmental protection. UHV transmission projects were formally put on the agenda around 2005.

Transmission voltages are generally classified into high voltage (HV), extra-high voltage (EHV) and ultra-high voltage (UHV). Internationally, HV normally refers to voltages ranging from 35 kV to 220 kV; EHV covers 330 kV up to below 1000 kV; UHV denotes voltages of 1000 kV and above.

High-voltage direct current (HVDC) generally refers to DC transmission voltages of ±600 kV and below, while voltages of ±800 kV and above are defined as ultra-high voltage direct current (UHVDC). In China, the UHV power grid refers to AC grids of 1000 kV and above or DC grids of ±800 kV and above. Dubbed the “power highway”, UHV power grids feature long-distance transmission, large capacity, low power loss and limited land occupation. Their transmission capacity reaches 2.4 to 5 times that of 500 kV EHV transmission.

Counting from the launch of technical demonstrations, China’s UHV line development spans more than 15 years. In 2005, to resolve the conflict between power shortages and environmental pollution in Central and Eastern China, State Grid officially initiated project approval for UHV programs.

Where will China’s UHV lines be constructed in the coming years?

West-to-East Power Transmission Corridors

The Jinsha River hosts China’s largest hydropower base and serves as the backbone of West-to-East Power Transmission. Boasting a natural elevation drop of 5,100 meters, accounting for 95% of the total drop along the mainstream Yangtze River, it has technically exploitable hydropower resources of 88.9 GW, with annual power generation of 504.1 billion kWh, ranking first globally.

Four cascade hydropower stations are planned for the lower Jinsha River, namely Wudongde, Baihetan, Xiluodu and Xiangjiaba from upstream to downstream. Their combined installed capacity totals 38.2 GW, equivalent to twice the installed capacity of the Three Gorges Hydropower Station, with an annual power output of approximately 170 billion kWh. These four cascade stations are developed in two phases. Phase I projects, Xiluodu and Xiangjiaba Hydropower Stations, have been commissioned. Phase II projects, Wudongde and Baihetan Hydropower Stations, were under construction at the time of writing.

Wudongde Hydropower Station has a total installed capacity of 10.2 GW and an annual power generation of 38.91 billion kWh. The station planned to impound water in July 2020, commission its first generating unit in August 2020, and bring all units online by December 2021.

In June 2018, China Southern Power Grid fully launched construction of the Wudongde Power Station-Guangdong & Guangxi UHV Multi-terminal DC Demonstration Project (referred to as the Kunliulong DC Project). Starting from Kunbei Converter Station in Yunnan and terminating at Liubei Converter Station in Guangxi and Longmen Converter Station in Guangdong, this project adopts ±800 kV three-terminal hybrid DC technology. The total line length reaches 1,489 km with a transmission capacity of 8,000 MW. It is a key inter-provincial power transmission project specified in the 13th Five-Year Plan for Energy Development and the 13th Five-Year Plan for Power Development, as well as a national demonstration project for UHV multi-terminal DC technology.

The Kunliulong DC Project supporting Wudongde Hydropower Station delivers Yunnan hydropower to Guangdong and Guangxi. The sending-end Kunbei Converter Station in Yunnan adopts conventional UHV DC technology, while receiving-end Liubei Converter Station in Guangxi and Longmen Converter Station in Guangdong deploy UHV flexible DC (the world’s first UHV flexible DC project). This improves the safety, stability and economic efficiency of grid operation under conditions of long-distance, large-capacity power delivery and large-scale power sources.

Compared with conventional DC transmission, flexible DC overcomes the bottleneck of severe impacts on receiving-end power grids, representing the future development direction of DC transmission technology. Adopting a more economical and flexibly operated multi-terminal DC system, the Kunliulong DC Project will not only further boost the consumption of Yunnan hydropower, but also set a demonstration example for large-scale development and utilization of wind, solar and other new energy sources.

With a total installed capacity of 16 GW and an average annual power generation of 60.24 billion kWh, Baihetan Hydropower Station will become China’s second-largest hydropower station after the Three Gorges upon completion.

Main construction work fully commenced in August 2017; the first unit was scheduled to generate power in July 2021, and all works to be completed in December 2022.

As one of the core power sources under China’s West-to-East Power Transmission strategy, Baihetan Hydropower Station will mainly supply power to the East China Grid, Central China Grid and China Southern Power Grid after commissioning, while meeting local power demand. It can additionally increase annual power generation of downstream cascade stations including Xiluodu, Xiangjiaba, Three Gorges and Gezhouba by 2.43 billion kWh, and boost power output of downstream cascades during the dry season (December–May) by 9.21 billion kWh, significantly improving power quality for downstream facilities.

The Baihetan-Jiangsu ±800 kV DC Project and Baihetan-Zhejiang ±800 kV DC Project are long-distance transmission projects planned by State Grid to support Baihetan Hydropower Station.

Originating in Ningnan County, Liangshan Prefecture, the two ±800 kV DC projects terminate in Wuxi, Jiangsu and Zhejiang Province respectively. Approval for the two projects was expected in June and December 2020.

UHV AC Project for Central China Interprovincial Loop Grid

In 2019, the National Development and Reform Commission successively approved the Shaanbei-Hubei UHV DC Project and Yazhong-Jiangxi ±800 kV UHV DC Transmission Project. Together with the Qinghai-Henan UHV DC Project under construction since late 2018, and operational projects including Hami South-Zhengzhou and Jiuquan-Hunan UHV DC projects, five ±800 kV UHV DC projects with a capacity of 8,000 MW will feed power into the Central China Power Grid within two years.

Therefore, it is imperative to strengthen inter-provincial power interconnection within the Central China Grid and construct the “Day-shaped” UHV AC loop grid in Central China.