While the power industry in Europe and the USA is struggling to break the shackles of a prolonged economic malaise, Asia is often cited as the region where business prospects are best and optimism reigns. Indeed, the big western manufactures can all point to recent order successes in the region: Alstom’s 1 GW supercritical coal plant in Malaysia, Siemens’ two CCGT plants for EGAT in Thailand, GE’s deal to supply three Frame 6FA gas turbines for a project in Sabah, Malaysia.
But the global players in power project development and equipment supply will be only too aware that the companies making the most inroads within Asia are those from mainland China. This is not a new trend but one that has been gathering pace and cannot be ignored.
China is well positioned both geographically and strategically to play an increasingly important part in Asia’s electricity sector. China has, for the most part, good bilateral relations with the countries of the region. It has shown itself hungry to become involved in large infrastructure projects across the region including ports, roads and railways as well as power projects. And its surplus external trade balances have enabled it to build up huge cash reserves that can be made available to fund major infrastructure projects. “China’s access to capital to commit to power projects is unrivalled,” says Joseph Jacobelli, global co-head of cleantech and head of utilities, Asia-Pacific, at HSBC Global Research.
China’s export credit agencies are now willing to put up significant sums to back Chinese projects elsewhere in the region. The Export-Import Bank of China recently offered relatively cheap finance for more than $50 billion of Chinese power equipment for projects in India – a move welcomed by power firms struggling to access enough equipment and local finance, but a threat to Indian suppliers such as BHEL and L&T. Chinese banks are also now willing to consider taking on project and EPC risk.
Meanwhile, China has been able to develop a large pool of world class construction engineering expertise, well versed in working on large and complex projects, completed in challenging conditions. This experience is starting to count, with China able to deploy teams of able constructions workers at relatively low cost. The lessons learned in China through constructing two or three coal fired power stations per week have not just been in terms of skills acquired but also in testing out technology. “The Chinese have been building 300 MW coal plants for years and there is now a growing acceptance of the use of Chinese equipment in overseas power projects,” says Andrew Kinloch, whose Logie Group has been arranging and advising on large infrastructure projects in Asia for more than 20 years.
Until recently, the market and in particular the finance community has harboured suspicions about the quality of Chinese power engineering equipment. International bankers were unwilling to take on projects based on Chinese equipment. Now much of this equipment is seen as proven and offers the added advantage of ready availability. Chinese firms such as Shanghai Electric Corp, SEPCO Electric Power, Dongfang Electric Corp. and Harbin boast large capacity and advantages of economies of scale.
It is not just in conventional power that the Chinese are making inroads. China is now set to challenge incumbent players in renewables. It is already a dominant force in the solar photovoltaic (PV) manufacturing sector and now boasts four out of the world’s top ten wind turbine manufacturers. Here again, Chinese Banks are willing to fund wind turbine purchases overseas, which can often be the clinching factor in a deal. In the hydropower market, Sino Hydro has made it clear that it too has international ambitions and is planning a $2.7 billion IPO to raise capital towards this.
China’s growing role in electricity projects in the region may be increasingly apparent now, but it is not a new strategy. “This has been coming for some time now – at least for the past three years,” says Kinloch. “It may have been accelerated by the reluctance of European banks to provide funding, but it is part of a trend that has also seen the likes of South Korea and Japan diversifying from their home markets.”
The question being asked is whether China is pursuing this policy due to the factors mentioned above or in response to a Beijing edict to generate foreign investment earnings as domestic demand slows? “Views are divided over this,” says HSBC’s Jacobelli. “But in my personal opinion, Chinese companies’ aim is to diversify, by looking to a range of alternative markets where they can employ their unique range of skill sets, away from the often risky and challenging home market. China is acting this way because it can.”