The risk of Energias de Portugal aiding China’s national ambitions
At Datenna, our China experts continuously track and conduct detailed investigations into acquisitions of European and US firms by Chinese entities. Through a series of articles in our resource library, we highlight striking acquisition case studies, analysed based on Datenna’s in-depth, unique data on China’s techno-economic landscape. This article elaborates on the acquisition of Energias de Portugal, S.A. by China Three Gorges.
Short read
- Energias de Portugal, S.A. (EDP) initially established China Three Gorges (CTG) Corporation, a Chinese state-owned enterprise, as a major investor in 2011. Significant increases in their shareholding occurred in 2021 and 2022.
- EDP is a Portuguese market leader among renewable energy providers.
- CTG is a Chinese-based transnational entity with a prominent role in hydropower, solar and wind energy.
- China Three Gorges is fully owned by the Chinese State Council (via SASAC).
- The acquisition fits into China’s national ambition to further expand its footprint as the world’s largest supplier of green energy, as well as solving domestic environmental problems.
The sale of EDP Energias de Portugal, S.A
In December 2011, the Portuguese Government announced that almost 22% of Energias de Portugal, S.A. (EDP)’s shares were acquired by China Three Gorges (CTG), a state-owned enterprise. EDP is the fourth largest wind energy producer in the world, with subsidiaries spread out over three continents, providing electricity and gas derived from renewable resources on a large scale. CTG’s investment, completed a decade ago, was spurred by the Portuguese government’s sale of relevant assets as a result of a rescue plan necessitated after national debt levels skyrocketed. EDP, headquartered in Lisbon, was founded in 1976 by the Portuguese government. The company was then formed by a merger of 14 additional national energy corporations due to imbalances in the electrification process of Portugal.
This acquisition re-entered the spotlight in 2018, when CTG, already the biggest shareholder, began pursuing full control over EDP by proposing 9.1 billion euros to buy the remaining 78% of shares. However, this bid was opposed by EDP’s remaining shareholders, as the takeover bid was deemed too low by EDP. Another factor that led to the bid being blocked is the growing suspicion among various government departments about the increasing amount of Chinese investments in key European industries.
However, in January 2021, alterations in EDP’s shareholder structure took place as a result of the failed takeover. CTG’s stake was modified to 19.03%. As of now, in February 2022, China Three Gorges boosted its equity position in EDP from 19.03% to 20.22%, for the first time in over 2 years. China Three Gorges is currently the largest shareholder of EDP, with the corresponding voting rights, followed by Blackrock, Inc., and Oppidum Capital as the respective second and third largest shareholders, with approximately 7% equity each.
The investor: The China Three Gorges Corporation
The China Three Gorges Corporation was established in September 1993 with the aim to develop the Yangtze River and create the Three Gorges Project, the world’s largest hydropower project to be constructed. As a result of a reorganization, on December 28, 2017, CTG became a corporation wholly owned and operated by the state.
According to Datenna’s data, the Chinese company has a registered capital of 27.5 billion euros. To date, CTG can be regarded as a world leader in clean energy production, primarily targeting large-scale hydropower development and operation. Consequently, CTG has evolved into China’s number one clean energy organization. As a key player in the field of new energy generation, CTG is actively developing technology that can contribute to the production of wind and solar power. Furthermore, an essential target is the realization of offshore wind farms. With these benchmarks in mind, CTG intends to expand even further and increase its importance.
Relevant shareholder
China Three Gorges Corporation is fully under the governance of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC). The SASAC is an institution that is responsible for carrying out the obligations assigned by the Chinese Communist Party’s Central Committee, as well as reporting and managing the state’s investor responsibilities to the State Council, thus on the central level. Recently, the directors of the SASAC announced that they are nearing completion of their 3-year action plan. This plan commenced in 2020 was designed for their key state-owned enterprises to be more innovative, risk free and have a stronger competitive position. To this end, the SASAC has made significant efforts to invest in strategic emerging technologies and industries, domestically, but also overseas. Through this set of plans, the SASAC envisions obtaining a combined private and publicly owned governance structure of state-owned enterprises. These reforms are expected to attract foreign vital investors and allow the market to be flexible.
Internationalization of CTG
In line with SASAC’s stated objectives, China Three Gorges is implementing intensified reform strategies to become an internationally competitive clean energy group. It aims to lead the way in advancing innovation in the clean energy sector by making strategic investments and contracting large-scale projects. CTG’s aggressive attempt in 2018 to gain full control of EDP reflects its determination to promote itself as the global leading player in this market.
CTG and EDP have held discussions centered on strengthening their collaboration in sustainable energy technology R&D, global project investments, alternative markets, and the mutual exchange of expertise. This partnership, along with foreign investments, has significantly contributed to CTG’s sustainable growth on a global scale.
China Three Gorges’ strong emphasis on the internationalization process has led to status as an exceptional outcome of the Belt and Road Initiative (BRI). It has accelerated its investments globally as part of their strategic development positioning plan; “Going Global”. To further illustrate this, CTG has finalized two other acquisitions in 2021, in Spain, and in the United Arab Emirates. CTG is now the sole owner of the renewable wind and solar parks in Spain, previously owned by Cefiro and Windrose. CTG has also increased its visibility by acquiring wind and solar park from Alcazar Energy Partners (AEP) in Dubai, UAE. As a result, CTG’s footprint has spread globally.
A key Chinese national ambition: investing in renewable energy
Since the start of the 11th Five Year Plan of China (2006-2010), the emphasis on accelerating green energy production has grown. Currently, the 14th Five Year Plan is already in place (2021-2025). An urgent goal in this respect is the realization of a low-carbon economy, as Xi Jinping announced that China aims to become carbon neutral as of 2060, a significant and ambitious move foward. This reflects the growing international and domestic concern regarding climate change. The ongoing environmental problems, especially within China, intensify the focus on green energy.
Additionally, with the implementation of the Made In China 2025 plan in 2015, the commitment to green energy has become more evident. Renewable energy is a key priority for the Chinese government to effectively combat air and water pollution challenges. Consequently, investments in the renewable energy industry and key technologies have increased significantly, as the CCP has directly and indirectly become a substantial investor in energy, with about $760 billion between 2010 and 2019, double the amount invested by the United States.
To conclude, the acquisition is part of a strategy implemented by the Chinese Party to obtain new technological know-how and enlarge their footprint globally, as China plans to transform itself into a self-sufficient, innovative, green energy, high-tech powerhouse by 2025. On one hand, Chinese investments in the European renewable sector could accelerate the EU’s transition to green energy by increasing funding sources, on the other hand, concerns of foreign control over European critical infrastructure rise to the surface.