Published on: Jun 3, 2022

The Acquisition
of EDP

As part of our ongoing research into Chinese acquisitions in Europe, Datenna decided to highlight and research remarkable cases. This case considers the acquisition of EDP – Energias de Portugal.

Acquisition Cases

Short read

  • EDP – Energias de Portugal, S.A. got acquired by the Chinese State-Owned Enterprise China Three Gorges (CTG) in 2011, important modifications regarding CTG’s share percentage were made in 2021 and 2022.
  • EDP has a leading position in supplying (green) energy on a large scale.
  • CTG is a world-class transnational entity with a prominent role in hydropower, solar and wind energy.
  • China Three Gorges is fully owned by the State Council (SASAC).
  • China can further expand its footprint as the world’s largest supplier of green energy. In addition, the technology used can be utilized to solve national environmental problems.

Three Gorges boosted its equity position in EDP from 19.03% to 20.22%, which is the first time in over 2 years. China Three Gorges is currently the largest shareholder of EDP.

The sale of EDP Energias de Portugal, S.A

In December 2011, the Portuguese Government announced that Energias de Portugal, S.A. (EDP) was acquired by almost 22% of its shares by China Three Gorges (CTG), a state-owned enterprise. EDP is known as the fourth largest wind energy production company 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, acquired 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 of EDP, began pursuing full control over EDP by proposing 9.1 billion euros to buy the remaining shares that were not yet in their possession. However, this bid was opposed by a number of EDP’s remaining shareholders as the takeover bid was judged too low by EDP. Another factor leading to the decision of blocking the bid by China Three Gorges comes from the emerging suspicion among various government departments and organizations regarding the scale of Chinese investments in Europe in key industries.

However, in January 2021, alterations in stakeholder structure within EDP took place as a result of the failed takeover. The stake got 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%, which is 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, both representing an interest stake in EDP of approximately 7%.

The acquirer: 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 most massive 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 our data, the Chinese company has a registered capital of 27.5 billion euros. As of now, CTG can be regarded as a world leader that puts its focus on producing clean energy, 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 generating, CTG is actively developing technologies 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

Noteworthy to mention is that China Three Gorges Corporation is fully under the governance of the State-owned Assets Supervision and Administration Commission of the State Council. The SASAC of the State Council 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 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, prominently not only in China itself but also especially overseas. Further, through this set of plans, the SASAC envisions obtaining a blend in the ownership structure of state-owned enterprises (SOEs). These reforms are expected to attract foreign vital investors and allow the market to be flexible

Investing in Renewable Energy on a large scale

Internationalization of CTG

As in line with SASAC’s stated objectives, China Three Gorges is implementing intensified reform strategies to become a world-class, 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 for projects. CTG’s abrupt, rather aggressive attempt in 2018 to gain full control of EDP reflects its determination to promote itself as the leading player in this market worldwide.

The most recent meeting in the context of an agreement between CTG and EDP concerned the further reinforcement of their collaboration in the sphere of sustainable energy technology R&D, global project investments, alternative markets, and the mutual exchange of expertise. This partnership, combined with foreign investments has made a significant contribution to CTG’s sustainable growth globally.

China Three Gorges’ strong emphasis on the internationalization process has led to it being considered an outstanding outcome of the Belt and Road Initiative (BRI). It has accelerated its investments globally as part of their strategic development positioning plan namely “going global”. To further illustrate this, CTG has finalized two other acquisitions in 2021, namely, in Spain, and in Dubai. CTG is now the sole owner of the renewable wind and solar parks in Spain, previously owned by Cefiro and Windrose. Moreover, CTG has increased its visibility by acquiring wind and solar park from Alcazar Energy Partners (AEP) in Dubai. As a result, CTG’s footprint has enlarged worldwide.

The Chinese Government’s high priority: Investing in Renewable Energy

Already since the start of the 11th Five Year Plan of China (2006-2010), the emphasis is on developing and growing green energy production. Currently, the 14th Five Year Plan is already in place (2021-2025). An urgent goal in this respect is primarily the realization of a low-carbon economy, as said, Xi JinPing announced that it aims to become carbon neutral as of 2060, which is a significant move forward. This reflects the growing concern internationally as well as nationally regarding accelerated climate change and global warming. The ongoing environmental problems, especially in China itself, intensify the focus on greener energy.

Additionally, with the implementation of the Made In China 2025 plan in 2015, the commitment to greener energy became even more evident. Renewable Energy is a high priority for the Chinese government as it can effectively help combat air and water pollution challenges. Consequently, investments in the renewable energy industry and key technologies have increased significantly, becoming a substantial investor in energy with about $760 billion between 2010 and 2019, which is 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, hi-tech powerhouse by 2025. On one side investments in the European renewable sector could accelerate the union’s transition to green energy, on the other side concerns arise in terms of foreign control over European critical infrastructures.