Philippine senator Sherwin Gatchalian has not been sleeping well.
“It is very difficult for us to sleep every night without lingering fears,” he said last month, as he presided over an investigation into potential security risks stemming from Chinese part-ownership of his country’s power grid operator.
The Philippines is far from the only country running on China-backed electricity. As a complement to President Xi Jinping’s signature Belt and Road infrastructure initiative, Beijing is pushing what it calls Global Energy Interconnection — a vision of a multitrillion-dollar worldwide electricity network.
China already has a number of power lines connected to other countries, including Myanmar, Laos and Vietnam, while lines into Thailand, Pakistan and Bangladesh are under consideration. For emerging economies hampered by chronic electricity shortages, such investments may be a blessing.
However, critics worry that China’s expanding presence in regional power grids could leave partner countries vulnerable.
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Mr Xi himself proposed Global Energy Interconnection in 2015, at the UN Sustainable Development Summit, as a way to meet the world’s demand for clean power. Like the BRI itself, China frames the concept as beneficial for everyone. “It increases mutual trust in politics and creates a new pattern of energy security featuring co-operation, mutual benefit and win-win results,” says the website of the Global Energy Interconnection Development and Cooperation Organization, the body leading the charge.
Mr Xi’s pitch was not exactly new. EU countries had been linking their grids, while the Renewable Energy Institute founded by SoftBank chief Masayoshi Son had been calling for a network linking Asian countries such as Japan, South Korea, China, Mongolia and Russia. But the Chinese president’s proposal dovetailed with his broader drive to build infrastructure spanning Asia and Europe.
Tomas Kaberger, chair of the Renewable Energy Institute’s board and a senior adviser to GEIDCO, believes that interlinked grids make economic sense and will inevitably spread. “It is like railway systems or telecom systems [that develop] step by step, but one day it will all be interconnected,” he said.
Proponents stress that the connections would allow more efficient use of renewable resources. Wind power generated in breezy areas, for example, could be supplied to less-windy places with higher demand.
Mr Kaberger credits GEIDCO with developing the overall vision, “presenting a global innovation agenda which engages the industry” and spurs transmission technology development.
China has certainly switched on the investment.
Chinese companies announced 35 new power transmission projects outside China between March 2018 and December 2019, on top of dozens of power generation projects, according to Washington-based consultancy RWR Advisory Group.
A GEIDCO report issued last year estimated that total investment in power sources and grids in BRI countries would reach $27tn by 2050.
A key player for Beijing is the State Grid Corporation of China. Backed by readily available Chinese financing, the state-owned company has steadily won contracts and brought other Chinese companies into the fold. SGCC has built grids connected from China to Russia, Mongolia, Myanmar and Laos, while also investing in grid operators in European countries such as Portugal and Italy.
State Grid Corporation of China workers at a power substation in the Tibet Autonomous Region © Reuters
In 2007, years before Mr Xi made his case to the UN, SGCC secured the right to participate in the Philippines’ grid, one of its first major overseas moves.
The company partnered with local tycoons to establish the National Grid Corporation of the Philippines in 2009 as part of a privatisation effort. The 25-year contract, which can be extended for another quarter-century, gives SGCC 40 per cent of the consortium — the legal maximum foreign ownership in public utilities.
The Philippine government’s National Transmission Corporation (Transco) still owns the transmission assets. But Transco said NGCP had installed Chinese equipment, including some from telecom group Huawei, in its system while appointing Chinese executives including a chief technology officer — despite restrictions in the Philippine constitution that would seem to preclude such moves.
Some experts suggest SGCC’s recent push for a “power internet of things” — bringing more information and communications technology into the industry — means China may not need to control much physical infrastructure to hold sway over electricity supplies.
Instead, “China will probably be able to achieve the interconnection of regional energy distribution networks . . . through the global deployment of comprehensive Chinese tech solutions for the power sector, such as smart meters, communications networks and data management systems”, said Claire Chu, a senior analyst at RWR Advisory. She added that significant use of ICT in the power sector heightens security risks.
This is what keeps people such as Mr Gatchalian up at night.
In December, Philippine energy secretary Alfonso Cusi asked an uncomfortable question out loud: could China “really shut down” the nation’s power grid?
“We can say that in this digital age, anything and practically everything is possible remotely,” Mr Cusi said. “You can start your car even at the parking area, you can put on the air-con, you can lock and unlock it.”
At the investigation hearing in February, opposition senator Risa Hontiveros also raised the alarm about SGCC’s ownership. “They are bound by law to gather intelligence and report to the Chinese government if requested and they may not refuse,” Ms Hontiveros said, referring to China’s vaguely worded national intelligence law.
“What happens in case of a diplomatic or political conflict between the Philippines and China?” she asked.
China’s own energy needs have fuelled investment in domestic projects, like this solar plant in the Xinjiang Uighur Autonomous Region © AFP
In the west, the Donald Trump-led backlash against Huawei has emphasised similar suspicions of China’s intentions. And US politicians have long held concerns about the safety of the electric grid as well.
“Lawmakers and experts in Washington have been engaged in discussions about power grid security for several years now,” noted Ms Chu. The National Defense Authorization Act for 2020, signed in December, recommends a national strategy for securing the power network against cyber attacks.
Security aside, there are questions of competition to consider. Just as Huawei has rapidly grown into a telecom powerhouse, China’s energy companies are gaining access and experience that could give them a global edge.
“Getting hold of power grids gives [SGCC] a lot of information about a country’s energy supply and demand,” said Yobun Inoue, senior co-ordinator at the Institute of Energy Economics, Japan. This could lead to other contracts such as power plant construction.
China’s own appetite for electricity has driven big investments in domestic infrastructure over the years. From 2013 to 2018, spending on energy and grid systems surged almost 40 per cent to reach Rmb534bn ($76bn), according to the IEEJ. “The large part of global investment in the most advanced transmission projects has been within China” in the past decade, said Mr Kaberger at the Renewable Energy Institute.
Now, China hopes to use its technological expertise to set international standards.
One focus is ultra-high voltage technology, which enables power transmission over long distances with minimal energy loss. In Brazil, China’s UHV transmission standard was used for the 2,538km Belo Monte grid launched last October under a 30-year concession.
At the International Electrotechnical Commission, meanwhile, China has become more outspoken in technical discussions and leads a number of working groups on standardisation.
“Achievements in standardisation are conducive to [our] participation” in the BRI, Shu Yinbiao, SGCC’s then chairman, told state media in a 2017 interview.
An RWR Advisory report warned that standardisation would lead to a “global reliance on China as an industry leader in control of key power technologies . . . which will no doubt have strategic consequence.”
Yet some industry insiders suggest those concerns are overblown.
“There is no technology at the moment that can only be done by Chinese companies,” said Eiichi Zaima, research adviser to the Central Research Institute of Electric Power Industry.
Mr Kaberger agreed that the power business offered equal opportunities to other participants — China just happened to be quick to seize them. Global Energy Interconnection, he stressed, was not a uniquely Chinese idea that other countries could not explore on their own; there is only a risk that China will control the development “if other countries do not engage in it”.
Put another way, if you snooze, you lose.
A version of this article was first published by the Nikkei Asian Review on March 3, 2020. ©2020 Nikkei Inc. All rights reserved.
