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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Is A Pan-Asian Power Grid Possible?

Bengal refinery

After a series of massive investments into the power industry, China is now looking for ways of exporting excess electricity. This past March, the Interconnection Development & Cooperation Organization was established with the goal of creating the means to transport power across Asia. Countries such as India, South Korea, and Japan have already expressed an interest in the plan, along with other neighboring countries.

The Asia Super Grid would require billions of dollars invested in high voltage power lines over the next several decades. Planners are also considering how to deal with the problem of energy loss, undeveloped regions and obstacles such as mountains. If the project were successful, however, it would signal the integration of smart grids, high voltage power lines and renewables across numerous countries. This could indicate higher efficiency and result in lower electricity prices.

This could be a big win for advocates of renewable energy. The cost to create coal-powered plants in China is at an all time low, meaning an influx in manufacturers. These additional plants have limited utilization of older ones, which now stands at less than 50 percent, according to an article by Sierra Club. China is now taking the necessary steps to restrict future coal plant’s construction, but projects under development will continue. Investors should be weary of coal producers like Shenhua Energy Co., Shaanxi Coal and Chemical Industry Group Co. who are likely to underperform in this time of limited demand and inundated supply.

Announced at the G20 summit this past September, China and the United States joined the United Nations in their global effort to halt climate change. This includes increased dependence on renewables and stepping away from sources of power like coal in order to reduce their combined total of 40 percent of the earth’s carbon emissions. Companies specializing in renewable energy production would likely benefit from a larger, more connected Asian power market. Power Construction Corp. of China Ltd. is diversified across multiple forms of renewables and will earn returns based on these activities.

Countries like India struggle to meet demand for energy primarily due to the number of rural households in their country. As of 2015, over 240 million households in India have no accessibility to electricity. India is extremely reliant on coal plants and coal generation is increasing by a staggering amount.

(Click to enlarge)

Source: India Energy Outlook 2015 Related: Oil To Crash Back To $40 If OPEC Fails

Ramping up coal production isn’t solving the power crisis, though. The dim villages are so remote that no electricity is likely to reach them. By expanding the abundance of Asian power lines, India can ease off coal production with Chinese power exports and focus on funding the production of stand-alone renewable energy systems in these isolated regions.

Following the conception of the Chinese group in March, multiple companies have agreed to participate in the planning of this continental grid. Softbank Group Corp., Korea Electric Power Corp., and Russian Rosseti PJSC will be conversing on potential options along with China. Softbank, a Japanese firm that specializes in telecommunication networks, announced in October that they would be working with Saudi Arabia and other partners over the next few years to fund technology projects possibly amounting to over $100 billion. All three of these public companies could prove to be successful long-term investments if their plans pan out.

Coal, on the other hand has been fizzing out for a while with environmentally conscious governments pushing to lower carbon emissions meaning demand will likely drop off in the coal market over the next several years. Investors should react accordingly and watch for changes pertaining to characteristics of the power grids in Asia.

By Michael McDonald of Oilprice.com

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  • Elaisa on November 06 2016 said:
    Power grids are more vulnerable than distributed generators.
    BrilliantLight Power, and Brillouin and others are preparing their first generation of devices.

    MagravBlueprintingProject off grid


    Infinity SAV magnetic generator

  • Bill Simpson on November 08 2016 said:
    Those Chinese are brilliant. They can save hundreds of billions on wasteful defense spending by investing in electricity infrastructure. In a decade, if will be, "Do it, or we shut down your electric grid." How would you answer that question? Suffer rotating blackouts for a decade until you can throw off the Chinese handcuffs? Very little chance of that happening.
    Too bad the US never had any long range plans. That is why this will be the century when China becomes the dominant global power. While scientists and engineers run China, we let the masses, who use what they see in movies and on Facebook as their information source, decide our national policy. It is rule by the uninformed. Thankfully, the oceans and nukes will prevent any country from dominating us politically.

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