SHANGHAI, Aug 9 (SMM) - On August 3, the largest power grid company in China, the State Grid Corporation, announced it will start the construction of eight Ultra High Voltage (UHV) power projects in the second half of 2022 and accelerate the preparatory work of other six UHV projects. The State Grid will invest over 150 billion yuan in the eight UHV power projects, which includes seven UHV power transmission projects. These new investment can be seen as a part of infrastructure spending that can stimulate China’s economy. SMM believes oncoming UHV power projects could bring more commodity demand, especially aluminium, which is crucial to support domestic consumption expectation.
Figure 1: Number of new UHV power transmission projects is expected to reach a record high
Data source: SMM, National Energy Administration
According to National Energy Administration, the annual power grid investment in China has been below 500 billion yuan since 2019, which is lower than spending during 2016-2018 period. At the same time, new UHV power transmission projects became less as well. One reason is the heavy investment has resulted in huge debt of power grid companies in China. The other reason is the demand in new UHV power transmission line has contracted after these investment.
However, due to the COVID-19 pandemic, the domestic economy has slowed down further. The authorities expect that infrastructure projects could support the economic recovery in China. In 2021, the power grid investment resumed high growth again, and more UHV power transmission projects have been initiated. The lockdowns due to COVID-19 over the first half of 2022 in China has driven infrastructure investment more urgent to support China’s economy. Therefore, The State Grid plans to start construction of seven new UHV power transmission projects in the second half of this year, as shown in the table below. There are a total of 9 new UHV power transmission projects commencing in 2022, including other two projects that have kicked off in March, which is the record high.
In China, all of the UHV transmission projects adopt aluminium bare overhead conductor (BOHC), mainly Aluminium Conductor Steel Reinforced (ACSR), as transmission lines. The seven oncoming UHV projects and five projects under construction have a total length of 14,250km in terms of single-circuit. SMM estimates these projects could bring more than 700,000 mt of aluminium rod demand over the construction period. At the same time, the State Grid accelerates the preparatory work of six other UHV projects, including five DC transmission lines, Inner Mongolia West – Hebei, Shaanxi – Henan, Shaanxi – Anhui, Gansu – Zhejiang, Tibet – Guangdong, and one AC transmission line, Datong – Tianjin South. Total investment will be over 110 billion yuan.
Due to the requirement of energy transition, more renewable energy projects are expected to come on stream in the future. As these renewable energy projects are mainly located in the north and west of China, We have no reason to doubt that the Chinese power grid companies will need more UHV projects for electrical transmission to the east of China, the region with the highest electricity demand. If China’s economy needs more infrastructure projects for stimulus, the government can consider accelerating the progress.
In 2021, Chinese aluminium rod output was around 4.4 million mt, accounting for 11% of total aluminium semi products output. As the power grid has been considered as one of the most important sectors for infrastructure investment by Chinese authorities to support the domestic consumption, SMM expects aluminium rod sector could benefit from these heavy investment, compared to other aluminium semi products.
