LISBON -- China Three Gorges is expanding a foothold in clean energy in Portugal, where it has been the biggest shareholder in Energias de Portugal, a local utility company, since 2012.

CTG, a Chinese state-owned energy company, bought 49% of EDP's share of Portugal's largest wind farm cluster for 248 million euros ($290 million) at the end of June, and is planning further investments, largely aimed at helping China to gain technological know-how.

The wind farms, which produce 422 megawatts a year, are the latest in a string of deals that have followed CTG's acquisition of a 21.35% stake in EDP in a 2.7 billion euros deal.

The agreement also established a strategic partnership between the two companies, including a deal to invest an additional 2 billion euros in joint investments -- which has largely involved asset sales by the highly-indebted Portuguese utility.

CTG has bought 50% of EDP's hydropower business in Brazil, as well as stakes in wind farms in Italy, Poland and the U.K. The two companies agreed last year to pursue further joint investments worth 1.5 billion euros.

"Chinese companies are not sleeping on the job," said Jorge Maia Alves, a leading researcher in clean energy development in Portugal, and vice dean of the Faculty of Sciences at the University of Lisbon. "EDP is one of the companies with more wind assets in the world. And we've come a long way in developing know-how."

Through its renewable energy unit EDPR, EDP is the third largest wind power producer in the world, with more than 9 gigawatts of global installed capacity, about half of which is in the U.S. It also owns assets in seven other European nations, Mexico, Canada and Brazil.

CTG entered Portugal during what Maia Alves called "an energy revolution." "We've gone from asking if we could rely only on renewables to now asking how are we going to manage them," he said.

Portugal has one of the highest rates of renewable energy penetration in Europe, running for four days last year solely on clean energy sources. The challenge of managing distribution and transmission grids is prompting industrial and scientific innovation.

Antonio Sa da Costa, president of the Portuguese Renewable Energy Association, says Portugal is a “test lab for China.” (Photo by Maria Caetano)

Portuguese clean energy production exceeded demand for more than one-tenth of last year. "Even Germany [another European leader in green energy] can't do that," said Antonio Sa da Costa, president of the Portuguese Renewable Energy Association. He added that Portugal is a "test lab for China."

"China is one of the biggest electricity consumer markets, and also one with the lowest ratio of renewable energy sources," said Sa da Costa. "The country has realized there's a need to push for new renewable energy plants. Building renewable energy plants is relatively easy, namely in hydro where there is already huge capacity. The problem is in managing hundreds of generation plants across the grid."

Learning curve

EDP and Redes Energeticas Nacionais, the Portuguese transmission grid operator -- majority owned by China's State Grid since 2012 -- have both prioritized the development of clean and efficient energy. Sa da Costa said that Chinese energy companies are not looking for profit in Portugal, but for a technology leap. "They can save 20 to 25 years -- it makes sense. Chinese investors are getting ahead on the learning curve with these companies," he said.

Overcapacity is a major problem in China. For example, the nation was able to accept only 17% of electricity generated by wind energy in 2016, in part because of inefficient production and transmission as a result of poor government policy, and in part because of falling demand caused by slowing economic growth.

Another outcome of Chinese energy investments in Portugal has been the establishment of joint development units, both at EDP and REN. "We are looking into four areas: energy storage and management, smart grids, flexibility for conventional thermal and hydropower generation, and offshore wind power," said Joao Maciel, director of a joint EDP and CTG initiative, a research and development company named NEW.

"CTG is mostly focusing on power generation. They don't work on retail operations, despite this being an area of great interest to them. Sooner or later, there will be the unbundling of services in China. CTG wants to learn in this field, this being the reason why it approved these specific areas of development in our center. In these fields, we are transferring knowledge to them," said Maciel.

The Chinese company has also retained Portuguese executives in EDP. Joao Marques da Cruz, a director liaising with CTG in international operations, said that "management capacity" was a principal driver in the 2012 deal.

"[The company] has clearly benefited from a modern governance system and from being adapted to international markets," said Marques da Cruz, adding: "There can be some transfer of know-how considering China has now a lot of installed capacity."

CTG and EDP have also furthered their partnership outside the Portuguese company's immediate operations, looking for new markets to explore together. In late 2016, Hydro Global Investments, a Hong Kong-based equal-share joint venture between EDP and CTG, was granted a contract to build a 260MW hydro plant by the Peruvian government.

"Hydro Global's purpose is to invest in small and medium-size hydro plants," said Marques da Cruz. "Latin America [is] a priority market as it can offer long-term power purchase agreements." The Peruvian project, San Gaban III, comes with a 30-year concession period for the price of $438 million.