Chinese Blackouts Could Power Up Grid Stocks


China is further ramping up its already high spending on renewable power just as extreme weather events are demonstrating just how vulnerable the nation’s power infrastructure is. That adds up to further investment in one thing in particular: China’s immense but unwieldy electricity grid.

China’s investment in grid projects in the first seven months of 2022 amounted to $32 billion, a 10% year on year increase. The full-year figure will likely also rise around 10%,

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estimates. State Grid, the bigger of China’s two state-owned electric grid companies, said last month that it expects to invest a record $76 billion this year.

A big part of that spending will be in ultra-high voltage lines, suitable for sending power long distances due to lower transmission losses. State Grid says it will start construction on eight UHV lines in the second half of this year, for a total outlay of more than $22 billion. China has been pushing to build a larger network of UHV lines across the country to better connect the power systems of different regions. Most of the country’s renewable energy resources are in the west while a majority of the population—and power consumption—are in the east.

And given China’s increasingly rapid buildout of renewable power, China will likely need to ramp up investment in the grid even further. The country added 53 gigawatts of wind and solar capacity in the first seven months of 2022—a 73% increase from the new capacity installed during the same period last year.

Some institutional problems in China’s electricity market won’t be solved by more transmission lines, for example price controls and vested interests in local power generation. But with Beijing counting on higher infrastructure spending to stimulate the economy, the grid will likely be a major beneficiary. The recent power shortage in Sichuan, a province that is usually an electricity exporter due to its vast hydropower resources, has also highlighted in an uncomfortably obvious way that more frequent extreme weather demands more grid resilience and energy storage—much as the Texas blackouts in February 2021 did.

The stocks of companies that could benefit are mostly down this year along with the majority of Chinese shares. Shares of Shenzhen-listed grid automation provider NARI Technology, which is controlled by State Grid, are down 22% this year. Priced at over 20 times forward earnings, shares still aren’t exactly cheap—but for investors with a longer time horizon, demand for grid products seems unlikely to be going anywhere but up. Other power equipment manufacturers like XJ Electric and Henan Pinggao Electric are also down this year.

Fortifying China’s grid for a more renewable, more volatile future is going to be a key task of the government for years. Investors looking to give their China portfolio a jolt could do worse than to plug in.

Write to Jacky Wong at jacky.wong@wsj.com

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