IBM is opening a multi-million dollar lab to develop technologies for China's burgeoning smart grid market.
The $40 million dollar Energy & Utilities Solutions Lab will be located in the IBM China Development Labs in Beijing. The company says it expects the lab, the first for IBM worldwide, to generate $400 million in revenues over the next few years.
"We want to get close to the marketplace so we can work day in and day out with our customers in China," said Matt Wang, vice president of IBM China Development Labs. "China is one of the largest markets for energy and utilities in the world."
State Grid Corp of China, the largest electricity transmission company in the world and the sole power provider for all but five Chinese provinces on the Chinese mainland, has pledged to invest $37 billion in smart grid technologies.
Smart grid systems enable utility companies to transmit power more efficiently while reducing carbon emissions. Such technologies also make it easier for power companies to integrate renewable resources, such as wind and solar, into electricity supplies.
Implementing smart grid infrastructure is especially crucial in China where an aging power system makes it difficult to transport electricity generated from wind farms and other resources located in the western part of the country to densely populated urban and industrial areas on the coast.
More than 20 percent of China's wind power capacity was unused last year because it could not be connected to the grid, according to the state-run China Wind Energy Association.
Smart grid systems are also imperative for China to reach its goal of generating 100GW of power, or 8 percent of the country's total electricity needs, from renewable resources by 2020.
"The development of renewable energy [in China] is much faster than the development of the grid, which means grid companies have to invest more money to catch up with renewable energy law," said Reggie Lai, senior associated director of public affairs and strategic communications firm APCO Worldwide's Shanghai office.
The pressure for State Grid to speed up the modernization of its power infrastructure, combined with billions of dollars in stimulus dollars for it to do so, means Western companies are positioning themselves to supply technologies for what will be one of the most ambitious smart grid programs in the world.
China aims to have a system up and running by 2020 at an estimated cost of more than $6 billion.
IBM, for example, is working with the China Electric Power Research Institute, an affiliate organization under State Grid, to develop a system for energy saving and loss reduction and to improve network reliability. The platform is being pilot tested by a State Grid subsidiary.
Other companies, including General Electric and Intel, are also collaborating with Chinese power providers.
"[The Chinese] are quite happy to use foreign standards as a basis because of the immediacy of the situation," said Ed Barlow, a senior analyst for CGiS, a China-based market consulting firm.
"They need the grid efficient now. They have the money now. The problems are very critical now, and Chinese companies are not going to be able to evolve in the time frame we are talking about," Barlow said. "China is the biggest game in town, and if you are a company like IBM, you want to get in."