German Power Grid: Belgium Screws Over China

Power grids are expensive to operate, especially in times of the energy transition. Thus it's not surprising that various international investors are involved with network operators like German company 50Hertz. The company operates the high-voltage electricity grid in eastern Germany, Berlin and Hamburg with a length of around 10,200 km. The grid operator has the task of ensuring a reliable energy supply in its region. Since the beginning of the energy transition, this has also included grid connections for offshore wind farms and increased compensatory measures in the event of fluctuating feed-in volumes, i.e. power grids are a highly sensitive infrastructure whose functioning also ensures the continued existence of Germany as an industrial location.

Until now, 60 percent of the 50Hertz parent company Eurogrid International SCRL, based in Berlin, was owned by the Belgian network operator Elia System Operator, 40 percent by Australian Industry Funds Management (IFM Global Infrastructure Fund). At the beginning of February, however, the Australians announced their intention to reduce their shares by 20 percent.

This in turn prompted the Chinese company State Grid Corporation of China (SGCC) to act. The state-owned company operates the transmission grids in China and is the largest energy supplier worldwide. In terms of sales, Fortune ranked them second in 2016, only beaten by Walmart.

In recent years, the Chinese have successively secured shares in power grids of various countries, including the Philippines, Brazil, Australia and Portugal. And they would also like a piece of the German cake. Already in 2014 they made a first attempt to secure shares in the Berlin electricity grid. "In Germany, many billions will be invested in the expansion of the networks over the next few years," Vice-Chairman Jun Luan told the Süddeutsche Zeitung at the time. There are plenty of opportunities for the Group's commitment here.

Power supply is a critical infrastructure (Image: K. Radtke)

China's expansion strategy affects not only the power grids, but all economic sectors. Raw materials stores, industrial companies, banks - everything is of interest to them. They are available particularly during periods of weakness and financial bottlenecks. So it is not surprising that in times of network expansion in Germany, which is expensive and time-consuming, a Chinese company would also like to get involved. So far, however, there has been no entry into so-called 'critical infrastructure', i.e. telecommunications or supply networks. The Foreign Trade and Payments Act, which provides for the government to have a say in such cases, only applies to holdings of 25 percent or more, as the Tagesspiegel notes.

Nevertheless, the federal government of Germany is said to have intervened. The Handelsblatt declares that the Federal Ministry of Economics asked Belgian network operator Elia to exercise its pre-selling right to the Australian share. At the end of last week, the Belgians confirmed the deal and took over the 20 percent. They now hold 80 percent of the shares in 50Hertz, the remaining 20 percent still belong to IFM.

Chris Peeters, CEO of the Elia Group, emphasised the importance for his company: "We are excited about consolidating our position in 50Hertz and look forward to supporting its management in the company’s next growth phase. The transaction will enable us to strenghten the collaboration between Elia in Belgium and 50Hertz in Germany and underscores our ambition to be a leading group of transmission system operators in Europe."

Boris Schucht, Managing Director of 50Hertz, is also relieved that critical infrastructure knowledge will remain in Europe: "We welcome the decision by our majority shareholder Elia to exercise its pre-emption right. This is a strong signal to bring the energy transition forward in Germany as well as in Europe. Over the past eight years, we have always had an excellent understanding with Elia. Our companies have collaborated on many strategic projects and we have leveraged our specific know-how, integrating high amounts of renewable energy, enhancing cross border collaboration and connecting offshore wind farms to the grid. We look forward to further intensifying this collaboration."