Shanghai Electric Group believes the gas turbine will be the ideal fossil fuel-fired power generation solution. PROVIDED TO CHINA DAILY

Stricter emission regulations

at home in China and abroad have forced many companies to upgrade their facilities and be innovative in order to reduce their carbon footprint. The Shanghai Electric Group Co Ltd, a State-owned company, quickly tackled this problem by acquiring a foreign company.

Manufacturing of power generation equipment is Shanghai Electric’s core business and it accounts for up to 50 percent of the enterprise’s total revenue. But with coal-fired power plants no longer favored by the government due to their high emission levels, the enterprise knew it had to make a change.

“A few years ago, we did some research on the outlook of power generation equipment and came to the conclusion that the gas turbine will be the ideal fossil fuel-fired power generation solution, while wind energy looks to be the most promising alternative in the renewable energy sector,” said Huang Ou, vice-president of Shanghai Electric Group Company Ltd.

The gas turbine technology is not new to the industry, but only major companies such as General Electric, Siemens, Alstom and Mitsubishi possess it.

“To obtain the technology, we had two paths — one is through independent research and development, which requires a lot of time and has uncertainties, and the other is to acquire an international corporation,” Huang added.

Fortunately for Shanghai Electric, which had resolved to master the gas turbine technology by 2030, Italian power engineering company Ansaldo Energia came knocking with a cooperation proposal they could not refuse.

The leadership at Shanghai Electric knew that working with the Italians would help shorten their R&D process by a decade and soon decided to purchase 40 percent of equity interests in Ansaldo Energia for 400 million euros ($445.6 million) in May 2014. Besides getting immediate access to the technology, the shrewd acquisition also helped Shanghai Electric gain access to the full industrial chain in the gas turbine sector.

“On one hand we are making steady progress of mastering the core technology by sending engineers to Italy for training. On the other hand we can continue the research on related technology for future considerations,” Huang said.

Shanghai Electric’s domestic market share in the gas turbine sector has risen by 10 percent since the deal and it has also received its first order from the Middle East. Rui Mingjie, a professor from Fudan University, said that Shanghai Electric’s acquisition of Ansaldo Energia has set a good example for other industry players.

“When we talk about overseas acquisitions, Chinese enterprises, especially State-owned ones, should not always focus on the controlling stake in the target enterprise. Instead, it is best that they let foreign companies which have technological strength take the controlling stake,” said Rui.

Shanghai Electric is now ai ming to become more competitive in the global market and it has identified technological innovations as the key to doing so. Huang said that at least half of the company’s new technologies would be invented through their own research by 2025.