Behind the State Grid’s Ambitious Investment Plan of Over 500 Billion Yuan

SHANGHAI, Jan 26 (SMM) - The State Grid held its annual general meeting in early 2022, at which it announced its plans to realise a total investment of 579.5 billion yuan in 2022, of which 501.2 billion yuan will be invested in power grid projects. The annual power grid investments again exceeded 500 billion yuan, an increase of 5.96% year-on-year.

However, it is worth noting that the planned investments in power grid projects through the "14th Five-Year Plan" period will be 2.33 trillion yuan. The investment target of 473 billion yuan in 2021 has basically been completed. If the investments of 501.2 billion yuan in 2022 can be realised in full, the following three years will see a certain reduction in the annual investments. And the change in the structure of investment is also worth paying attention to, including ultra-high voltage DC-based cross-region and cross-province transmission as well as the need to strengthen the construction of the distribution network, in response to the growing development of distributed power and electric vehicle access-related supporting facilities.

Looking back to the planned and realised investments of the State Grid, the actual investment volume has been on a downward trend since 2016, with an overall decrease of 10.1%. The investment volume rallied in 2020 thanks to the national infrastructure construction project in the post-pandemic era to prop up the economy.

In addition, 2021 is the first year of the 14th Five-Year Plan. The State Grid was committed to expanding the investments with a planned investment volume of 473 billion yuan, a year-on-year growth rate of 2.83%, maintaining slow growth. However, after the Spring Festival in 2021, the prices of copper, aluminium and other materials rose sharply, hence the pressures incurred from the unit consumption cannot be ignored. The copper consumption of the State Grid was also lower than in 2020. Based on the current situation, SMM expects the average spot price of copper cathode will be 63,500 yuan/mt in 2022, which pulls back slightly from the peak but will stay high, sustaining the unit consumption at a high level.

From the investment objectives, the first stage of rapid development in UHV investments was in 2014-2017, with the investment amounting to 196.6 billion yuan. The development of UHV will continue to accelerate during the 14th Five-Year Plan period, with the total investments of the State Grid expanding to 380 billion yuan, with an annual average of 76 billion yuan, up from the average value of 71 billion yuan in 2018-2020. UHV projects mainly consist of two parts, namely line construction and substation construction. The line construction mainly involves steel-core aluminium stranded wire, which engages none copper consumption. The application of copper is mainly found in transformers, converter valves, GIS and other electrical equipment in substations. During the "14th Five-Year Plan" period, the State Grid plans to deepen the construction of ultra-high voltage projects that cover "24 AC lines 14 DC lines", involving more than 30,000 km of lines, 4 substations per 1,000 km, about 4 transformers for each substation. SMM believes that in the "14th Five-Year Plan" period, the accumulated consumption of copper for UHV construction will reach 120,000 mt with a construction period of about 2-3 years. The copper consumption will have limited boost in the short term.

Another major investment focus is the transmission and distribution. China Southern Power Grid has taken the lead in prioritising the construction of the distribution network, and the relative investments in the "14th Five-Year Plan" will amount to 320 billion yuan, accounting for about 50% of the total investments. The future demand for traditional high-voltage cables may shrink, and be replaced by 35kV, 63kv, 110kv high-voltage distribution system as well as 6kV ~ 10kV (20kV) medium voltage distribution system. These systems use copper-based transformers, loop network cabinets, switch cabinets, fire-resistant cables, etc., The challenge remains the same as the high raw material prices has sustained the unit consumption at a high level. Hence, the relative copper consumption is unable to reach the level seen in the "Thirteenth Five-Year Plan" period.