Is the new power infrastructure controversial? Maybe there is a big game going on

Recently, various provinces have launched massive investment plans to cope with the impact of the COVID-19 epidemic and the downward pressure on the economy. At the same time, the call for launching a new round of large-scale infrastructure is also growing. As of March 1, 13 provinces, cities and districts, including Beijing, Hebei, Shanxi, Shanghai, Heilongjiang, Jiangsu, Fujian, Shandong, Henan, Yunnan, Sichuan, Chongqing, and Ningxia, have released a list of investment plans for key projects in 2020. This investment list includes a total of 10,326 projects, of which 8 provinces have announced a total planned investment amount of 33.83 trillion yuan. Judging from the regions that have disclosed specific investment plans, infrastructure investment is an important part of the investment plans of various regions.

Unlike in the past, the calls for "new infrastructure" are now more frequent. New infrastructure emphasizes "focusing on innovation" and "making up for shortcomings". At present, my country is in a critical stage of supply-side structural reform. As far as the power and energy industry is concerned, "focusing on innovation" and "making up for shortcomings" should focus on the development goal of building a clean, low-carbon, safe and efficient modern energy system. However, the widely circulated new power infrastructure is ultra-high voltage, which has ten years of operation experience.

UHV has been accompanied by controversy since its birth. Is the emphasis on UHV in the new infrastructure accidental or intentional? We believe that the analysis of this issue should go beyond previous controversial topics and should be fully interpreted in the context of the times.

The role of new infrastructure in driving engineering projects in 2020 should not be overestimated

The 34 trillion yuan investment plan released by local governments may seem amazing, but it is not excessive. First, it refers to the total amount of projects, not the investment amount in 2020. Secondly, from the analysis of the projects, it is more of a game of local governments, hoping to obtain various national funds and bank loans through these projects. Moreover, the total amount of fixed asset investment (excluding farmers) in 2019 has exceeded 55 trillion yuan, so the plans announced now are normal.

In other words, the 34 trillion yuan investment plan released by the local government has not brought about a significant increase in fixed investment in 2020, and even the investment funds need to be further implemented. However, it does play an important role in boosting market confidence. At the same time, related industries will also usher in more opportunities with the help of the "new infrastructure" hotspot.

Therefore, it is somewhat difficult for the power industry to expect a major explosion of UHV projects in 2020, but it does not prevent the expectation for the future of UHV from being increased through the game of new infrastructure. As emphasized in the "Key Work Tasks for 2020" released by State Grid, the Nanyang-Jingmen-Changsha, Nanchang-Changsha, Jingmen-Wuhan, Zhumadian-Wuhan, Wuhan-Nanchang UHV AC, and Baihetan-Jiangsu and Baihetan-Zhejiang UHV DC projects were approved within the year.

“New infrastructure” brings “new controversy” to UHV

UHV has been accompanied by huge controversy since its birth, especially UHV AC technology. Whether UHV has its technical necessity for development needs to be determined in combination with my country's resource situation and the future development target model of the power system. Should we choose to get electricity from afar or from nearby? However, the technical necessity of UHV development is a sensitive topic discussed at the "academician level", so it is not convenient to make too many elaborations or conclusions here. This new infrastructure has brought UHV to the forefront again. Although economists often blurt out very naturally, people in the power industry can't help but wonder in their hearts, the UHV we have been working on for so many years turned out to be new infrastructure?

There is a basic consensus on the scope of new infrastructure. The high-sounding statement is to meet the people's growing needs for a better life, and the down-to-earth statement is to build a basic platform for future economic and social development. But in any case, it has an important feature, that is, new technologies that meet the needs of future social development. 5G, artificial intelligence, industrial Internet, and Internet of Things are typical representatives of new infrastructure. Therefore, just for this point, the controversy caused by UHV, which has ten years of operating experience, on the issue of "new infrastructure" is: Does it represent a huge technological innovation like 5G (rather than 4G) or Internet of Things (rather than Internet)?

In addition to the above-mentioned disputes, the deeper controversy is the concern that the accelerated promotion of UHV by new infrastructure will bring about two results: one is whether the utilization efficiency of UHV can reach expectations and whether it will cause waste of investment; the other is if the utilization efficiency is not high, whether the consequences will be paid by the entire population and whether it will push up social electricity costs.

It seems controversial, but it may be a big game.

Whether UHV represents a huge technological innovation is a topic for discussion among the public, not a focus of industry insiders. For the industry, the focus is still on the same old controversy as in the past. However, the dual reforms of electricity reform and mixed ownership reform may minimize the adverse effects of these concerns.

The first is the electricity reform. The new round of power system reform that began in 2015 has changed the business model of power grid companies and the price mechanism for power generation, transmission and use. For power grid companies, facing the increasingly stringent reform of power transmission and distribution prices, they have to improve their investment and operating efficiency; the change in the price mechanism for power generation, transmission and use clarifies the cost and price of each link. For UHV and UHV supporting power sources, the receiving end power price will be clearer, including the market-based transaction price of the power source at the sending end on the one hand, and the power transmission and distribution price of inter-provincial and inter-regional special projects on the other hand. In order to ensure that the power price is competitive with the local power source, the total price of the two cannot be too high. The direct impact of the power reform on UHV is that the power transmission and distribution price of inter-provincial and inter-regional special projects depends on its reasonable cost and reasonable profit. Unlike the situation where the provincial power transmission and distribution price needs to be "passively" paid by users across the province, UHV can be selectively paid by some power purchasing users "actively". The second is mixed reform. Mixed reform has been a hot word in recent years, and it is no exception for power grid companies. The first key reform task of the State Grid Corporation of China's Reform Document No. 8 [2020] is to implement mixed ownership reform at a higher level and on a larger scale. It clearly states that "strive to complete the work of attracting investment in the Qinghai-Henan UHV DC project and actively solicit potential investors for the Baihetan-Zhejiang UHV DC project." The direct impact of mixed ownership reform on UHV is that investment entities will be diversified.

In this way, both the financial pressure and investment risk are not just the business of the power grid company. Therefore, under the above two reforms, we have noticed some very interesting phenomena. The transmission and distribution price mechanism of inter-provincial and inter-regional special projects actually solves the public opinion pressure that the investment risk of the power grid is paid by the whole people. In theory, it is a market-oriented behavior. Regardless of whether its existence is reasonable or not, without the active purchase of electricity by the receiving end, no one will actively pay for it. The mixed reform solves that, under the increasingly stringent transmission and distribution prices and cost supervision, the power grid company does not have to worry too much about the huge financial pressure of investing in UHV and the risk of investment recovery. At the same time, as far as the government is concerned, it will not be a big problem to see the price at the receiving end being too high. According to the experience of reducing electricity prices in recent years, there are sufficient means to control the landing price at the receiving end, such as extending the depreciation period of inter-provincial and inter-regional special projects or further lowering the on-grid electricity price (or trading price) of the sending end power supply. Once the above assumptions are established, there is no need to worry about the consequence of the ineffective investment in UHV causing the whole people to pay for it. The controversial issue of the necessity of UHV construction in recent years will also be transformed from a social issue to a market issue.

Even so, it will still bring impacts and risks to two types of entities. The first type is the UHV strategic or financial investors introduced by the power grid company, and the relevant investment risks must be carefully considered; the other type is the power supply investors supporting the UHV. This type of power supply is on the same side as the inter-provincial and inter-regional special projects. In order to ensure that the electricity price at the receiving end is not too high, they may have to sacrifice part of their own interests to compensate for the transmission and distribution price of the UHV special project. Supported by the above assumptions, the new infrastructure has achieved multiple effects on UHV: it has enhanced market confidence at this stage, and has attracted future infrastructure investment in the power industry. At the same time, with the help of electricity reform and mixed reform, it has avoided the social risk of low investment efficiency and the whole people paying the bill. Therefore, at this stage, the inclusion of UHV in the new infrastructure may not be accidental, but may be a big game, and the direction of the future UHV development model has been planned long ago.