Security fears threaten Chinese wind deals


August 15, 2016

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Is Chinese investment in the energy networks of developed nations ‘a bad thing’? Politicians in the UK and Australia appear to think so.

Last month, the UK government launched a review about whether to allow French utility EDF to build the Chinese-backed £18bn Hinkley Point C nuclear facility. The government, led by Prime Minister Theresa May, has warned of risks to national security.

And last week, the Australian government made a preliminary decision to block the sale of a 99-year lease of a 50% stake in utility Ausgrid to Chinese and Hong Kong bidders because of security concerns. China’s State Grid Corporation and Hong Kong-listed Cheung Kong Infrastructure were both bidding for the lease.

Now, let’s leave China out of the equation for a second. Both deals have been the subject of major scrutiny regardless of the presence of the Asian superpower.

EDF shareholders have warned that delays in delivering Hinkley Point C would put the future of the French utility in doubt, while other critics fear that the UK electricity network is at risk by pinning its future on a big and complicated project. Meanwhile, in Australia, critics say part-privatising Ausgrid is not in the public interest.

There are legitimate concerns about both deals, but citing ‘national security’ looks like a smokescreen to give both governments more time for a wider re-think.

We do not want to underplay the importance of security in such deals. We saw last week that China General Nuclear Power, which is backing Hinkley Point C, is being accused of trying to steal nuclear technology in the US and is being investigated by the FBI. But that is primarily focused on the theft of corporate secrets.

In contrast, when the UK and Australia talk about ‘national security’, the implication is that China could switch off a large section of the electricity network if the nations got into a diplomatic spat. It could happen, but we think it is unlikely. China has plenty of other financial and political weapons that it could use instead of shutting down these plants, which would harm its investments.

We also see an inconsistency here. National security is only raised a concern if it is Chinese investors, but the UK is happy to let French, German and Spanish firms own large electricity-generating assets including offshore wind farms. Why the difference?

These other nations may not have the same financial might as China, but they could still shut down UK assets. It does not look like a huge risk in those cases – and it should not be with China.

And this is why this debate is important for wind farm investors.

Over the last year we have seen state-backed Chinese firms conclude big deals in the European offshore sector, including China Three Gorges and SDIC Power.

We expect more of this over the next couple of years, and see it as a vital funding source – admittedly, one of many – in supporting wind’s expansion offshore. These firms should be free to compete for deals and do not want this scuppered by political posturing. If
these governments have credible evidence, they should reveal it.

That is not to say we think Hinkley Point C should go ahead. It looks like a massively costly and inefficient project when other cheaper energy sources, including wind, are available. But, if it is to be rejected, then it should be for sensible business reasons, not just spurious security fears whipped up to manipulate the public.

For one thing, it sends a bad message to wind’s would-be new investment partners; and mistrust of Chinese investors coming to Europe is likely to be repaid with mistrust of European firms going to China. Doing business with China is already hard enough.

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