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Client interviews

Power transactions and trends

Three-pronged investment strategy for China Three Gorges

Utility giant China Three Gorges Corporation (CTG) is one of the global energy sector’s biggest players right now. EY’s Alex Zhu spoke to Wu Shengliang, Executive Vice President of CTG International and CEO of CTG Europe, to find out what’s next on the company’s investment agenda.

CTG’s mission dedicates the company to clean energy, and it primarily develops and operates hydropower generation projects, most notably China’s Three Gorges Dam.

CTG Europe, as the company’s international markets investment platform, is mainly focused on developing CTG’s investment opportunities in Europe and North America.

Like many other Chinese power players, CTG is increasing its focus on outbound investment, which Wu says is driven by more than just a scarcity of domestic opportunities.

“Chinese companies are taking a more international approach, not just because we need overseas investment opportunities, but because we need to learn how to compete at a global level,” says Wu. “CTG’s overarching mission is to be one of the world’s leading clean energy companies and this means we must look overseas.”

With this in mind, Wu says CTG’s future investment priorities fall into three main categories:

  1. Developed markets, specifically in North America

    Mature markets with strong technology in clean energy, particularly offshore wind power, are in CTG’s sights.

    “We want to be a leader in offshore wind, at least in China. China’s energy strategy aims to achieve 5 GW of offshore wind capacity by 2020. CTG is developing 4 GW of this capacity. As Europe is a leader in offshore wind, participating in this market will help us better understand the segment. We are keen to transfer the relevant knowledge back to China.”

    This rationale was a big driver of CTG’s acquisition of an 80% stake in Germany’s WindMW GmbH in June 2016, Europe’s biggest utilities deal of Q2 2016.

  2. Hydro-rich regions

    CTG specializes in hydroelectricity. However, most of China’s major hydro projects are set for completion by 2022, says Wu. This has prompted a shift in focus to overseas markets, with Brazil as the company’s key target.

    “Brazil is the world’s second-biggest hydro market after China. We hope to do business there over the long term,” says Wu. “Africa is also an area of focus. We have a longterm strategy for investment in the continent.”

  3. Neighboring countries

    China’s growing demand for energy is stifled by its limited natural resources. CTG plans to meet the country’s need for power by developing hydropower generation in neighboring countries and transporting the power generated to China via grid interconnections. Wu says this initiative is a good fit with China’s One Belt One Road economic strategy.

    Projects are already underway in Laos and Pakistan, while Myanmar is also of interest to CTG.

Evolving risk awareness

Wu notes that CTG has evolved its approach to managing investment risk over the past five years.

“We’ve always been very good at managing project risk but, when coming to countries with political volatility, there is still a need to gather experiences in terms of managing country risk and also industrial cycle risk,” he explains.

Co-investing with local utilities has helped to understand some specific markets better, as highlighted by CTG’s partnership with EDP Portugal to develop projects in Europe and South America.

“We invested in Brazil in 2015 at an economic low point of the country. We considered that it was worth entering this resource-rich country when investments were cheap, knowing that the market would pick up soon. We believe our investment in Brazil is a win-win situation. This project not only benefits CTG but the local community, which is an important component of our company’s mission.”

EY - Wu Shengliang

Wu Shengliang is Executive Vice President of CTG International, CEO of CTG (Europe) and Director of EDP Portugal. He has worked in the power and utilities sector for more than 20 years, including in hands-on operational roles and, more recently, in investment and M&A strategy. He led CTG’s successful acquisition of EDP Portugal and Meerwind in Germany

This client perspective was originally published in the Power transactions and trends (PTT) 2016 review and outlook