* SGCC eyes Greek, Spain grids after Portugal, Italy bids
* State Grid set to build regional EU grid portfolio
* Hands-off style eases fears of foreign grid ownership
* Low yield requirements let it outbid funds, EU grids
By Geert De Clercq, Charlie Zhu and Stephen Jewkes
PARIS/HONG KONG/MILAN, Aug 10 (Reuters) - The European Commission has long wanted the continent's power grids to work in unison for reasons of efficiency and supply security, so far to little avail, but a regional power network could soon be a reality, courtesy of State Grid Corporation of China.
While Europe's utilities have met hostility to cross-border forays and been outbid by infrastructure funds, State Grid, the world's largest utility by revenues, with its deep pockets and reputation for hands-off management, has had an easier ride, buying minority stakes in Portuguese and Italian grid operators and pursuing designs on Greece and Spain, too.
If all goes to plan, it would become the first utility to build a major regional electricity grid portfolio, a feat that the Commission had hoped Europe's big grid operators would have achieved in the five years since it forced the separation of the grids from power production to increase market competition.
For wholly state-owned State Grid, which distributes electricity to 1.1 billion people across 90 percent of China, the appeal of the consistent, regulated income from European power assets is obvious.
A State Grid official familiar with its overseas strategy said projects abroad typically yield high single-digit to double-digit returns, compared with low single digits at home.
Its relatively low yield requirements give it an edge over Western infrastructure funds and European sector peers.
In a recent statement, an official in State Grid's international business department said it was actively investing in regulated electricity assets and realising steady returns.
"When we make overseas investment, we are not doing charity," he said.
As State Grid builds up its portfolio, it could start thinking about linking up its assets across the region; the ownership of several grids by one operator allows easier cross-country power-load balancing, so it doesn't get caught out by peaks in one area and can shift power within its own network rather than being forced to parlay with a competitor.
In 2012, State Grid bought 25 percent of Portuguese grid operator REN, then last month it entered Italy with a deal to buy 35 percent of CDP Reti for at least 2.1 billion euros ($2.8 billion).
CDP Reti owns 30 percent of gas transport group Snam and is set to receive a similar stake in power grid Terna.
State Grid, with Terna and Belgium's Elia, is also bidding for 66 percent of Greek grid operator ADMIE, sources told Reuters in May, and is interested in bidding for German utility E.ON's northern Spanish grid, which serves 650,000 customers and could sell for as much 1 billion euros, a source familiar with the parties told Reuters.
E.ON has launched the sale process and first bids are due next week.
"After the recent investments of SGCC in South Europe, there is indeed a strategic positioning within the region," ADMIE Chairman and CEO Yiannis Yiarentis told Reuters.
Patient and discreet, State Grid only invests where it is welcome, shying away from hostile bids, and has seized on the opportunities afforded by privatisations in cash-strapped southern euro zone countries.
State Grid Executive Vice President Zheng Baosen told Reuters last year China was ready to invest further in European utilities "if the price is right".
In addition to Europe, it has made major investments in power grids in Brazil, the Philippines, Australia and Hong Kong.
Its total overseas assets now exceed $23 billion, and the profits of its overseas operations rose to 3.2 billion yuan ($520 million) in 2013 from 800 million in 2009.
An official at a Brussels-based utilities lobby said Chinese utilities have huge ambitions in Europe and are sending countless missions to ask for advice on where to invest.
Besides China's grid operator, its power producers are also breaking into Europe. In 2011, China Three Gorges paid 2.7 billion euros for a 21 percent stake in Energias de Portugal, and EDP chief executive Antonio Mexia has said his shareholder is looking at other opportunities in Europe.
In October, China General Nuclear Corporation and China National Nuclear Corporation agreed to take a joint 30-40 percent stake in an EDF-led consortium to build a 16 billion pound nuclear plant in Britain.
Fear of foreign control of electricity networks has been a powerful inhibitor to the integration of EU grids. With the exception of Elia and Dutch Tennet's grid investments in Germany, there has been remarkably little cross-border grid investment in Europe.
Consulting firm Accenture's Jean-Marc Ollagnier, who advises Chinese utilities, said the Chinese are welcome partners as they provide investment and don't usually get involved in operations.
"In general, when a Chinese firm acquires a foreign company, it will leave local management in charge. When a European or U.S. utility buys a stake in a foreign company, you will likely soon have 10 guys who come and tell it what to do," he added.
Insiders say State Grid has given a free rein to Portugal's REN and helped it get credit. Last year, REN won access to a 1 billion euro financing line from China's Development Bank thanks to its Chinese shareholder.
But indications are that State Grid wants to play a more active role in CDP Reti, which might foreshadow a more interventionist Chinese stance in Europe.
A CDP Reti group source said the SGCC deal was "a bit more than just a financial operation".
He said the deal envisages a five to seven year period of "inserimento" (insertion), during which the Chinese will get to know the local market.
The Chinese company puts it much more forcefully.
"State Grid is not just a passive financial investor. It will actively take part in the management of CDP-Reti. This is not a financial investment, more like a strategic investment," the State Grid official said. (Additional reporting by Arno Schuetze in Frankfurt; writing by Geert De Clercq; Editing by Will Waterman)