Sun & Wind Energy 3/200946

China’s wind energy sector is at the dawn of a Golden Age. Our politicians are astounded by the unexpected growth”, says Junfeng Li, Secretary

General of Chinese Renewable Energy Industries Association (CREIA). Authorities at the National Development and Reform Commission (NDRC) reacted and in 2008 raised the target from 5 GW installed capa-city to 10 GW in 2010. However, in the opinion of Junfeng Li, these expectations are still too modest: “I am confi-dent that we will arrive at 20 GW by 2010 and then be ready to touch the 100 GW mark in 2020”.

“China’s Renewable Energy Law 2006 caused a boom for wind energy on the domestic market”, says

Arndt Krakau, an analyst with HSH Nordbank based in Hamburg, Germany. Krakau is author of the Wind Energy Sector Report published by HSH Nordbank in the last quarter of 2008. The law provides producers with a purchase guarantee for electricity generated from wind power plants and requires local authorities to build access roads and install manifold stations. Grid operators are under obligation to provide trans-mission infrastructure where necessary. “Project in-vestors obtain building and operating licences based on a public bidding procedure with the lowest feed-in tariff receiving the contract”, explains Krakau. Be-cause of the bidding procedure, a fixed feed-in tariff

The boom of the Chinese wind energy sector went far beyond the

government’s expectations. Experts say the sector will now profit

from stronger promotion. Market conditions could then continue to

be attractive. Presently, Chinese market trends suggest that domestic

turbine manufacturers are growing increasingly important.

Coun

try

SpeC

ial

Shanghai at night: one result of China’s economic upswing is a growing appetite for energy. Photos (2): Michael Lemke

Similar to this kite, China’s wind industry is caught in an upcurrent. Photo: Rainer Kregovski

From importer to exporter

Wind EnErgy in ChinaPh

oto:

dpa

Sun & Wind Energy 3/2009 47

does not exist. “Whoever offers the lowest tariff re-ceives a 25-year contract. The tariff has a validity pe-riod of 30,000 full load hours and is then reduced to average market price at that time. The discrepancy between the feed-in tariffs and the conventional power price is shared among the local grid operators. A binding rule for a minimum of 70 % Chinese con-tent encourages foreign component and turbine man-ufacturers to open up local facilities. Four rounds of wind concession tendering programmes were con-ducted between 2003 and 2006 with eleven projects and 2.45 GW total wind capacity approved. The highest bidding amounted to Chinese Yuan CNY 0.519 (approx. 5 €-ct), the lowest to CNY 0.382 (approx. 4 €-ct). Meanwhile, the tariffs are slightly higher. Power prices for the 72 wind farms built in 2008 ranged between CNY 0.51 (approx. 5 €-ct) and CNY 0.61 (approx. 6 €-ct).

Strong political commitment

China’s central government has developed a keen sense for environmental issues. “There is high public awareness for issues of air and water pollution caused by burning fossil fuels”, says Krakau. The trend is also apparent in statements by the govern-ment. The new mindset was reflected in a story by in-ternational broadcaster China Radio International (CRI). CRI reports that “China is currently second- largest energy consumer worldwide and national en-ergy demands are expected to soar in the course of the next decades. The country struggles with funda-mental eco-protection deficits: about 70 % of the to-tal energy production is coal-based releasing masses of pollutants into the atmosphere.” In the report, China’s government commits to wind power produc-tion. Today’s energy bottlenecks will be fended off on-ly by changing the existing energy supply structures and fully utilizing alternative sources. The country is prepared to strengthen the utilization of renewable energy. Guangying Li, Vice-Chairman of Chinese Electricity Industry Association, says: “China’s Medium and Long-term Development Plan for Renew-able Energy targets 15 % of the energy consumption to come from sustainable sources in medium-term”.

According to HSH Nordbank, the government is planning six wind parks each with a capacity of 1 GW until 2020. Krakau believes that the first 1 GW farm will be completed in Inner Mongolia. In addition, China’s government announced plans for the con-struction of three 10 GW projects. “The current tar-gets will be comfortably exceeded even in the light of poor incentives”, says Krakau.

China on its way to the top?

Birger T. Madsen of BTM Consult, an independent wind consultancy based in Denmark, is of the same opinion. At the end of 2008, the company published its report “Made in China: 2008-2012” with an up-dated assessment of the country’s wind energy mar-ket. “We fully expect that the installed wind capacity

From importer to exporter

Sun & Wind Energy 3/200948

Country SpECial Wind EnErgy in China

will increase by 36.5 GW until 2012.” This means that the cumulative capacity in 2012 would be higher than 42 GW. Steve Sawyer, Secretary General of Global Wind Energy Council (GWEC), is equally optimistic: “In the last two and a half years, the change of the market has been rapid. Before long, China will have the world’s largest wind energy market. I assume that China will also become the world’s top turbine man-ufacturer by the end of the year.”

China’s wind energy market really started to draw attention in 2005 when the Renewable Energy Law was passed and installed capacities grew by 60 %. “Now, capacities redouble by the year”, says Sawyer. In 2007, 3.3 GW were newly installed sending market

size to 6 GW as the year ended. Madsen believes that the capacity in 2008 was 5.5 GW and will annually grow to 9 GW until 2012. The central government is seen as a driving force. “Optimism prevails for invest-ments in China’s wind market even in the light of the financial crisis. The government’s “top-down” ap-proach for buoying growth is a key element.” In that respect, China differs significantly from markets driven by the industry. Support comes directly from the government. “The five largest utilities are state-controlled and provide over 50 % of the total installed capacities”, says Madsen. Since the implementation of renewables is enacted by law, cost-effectiveness and profitability factors are of lesser importance in the short run. Here, too, the country’s market differs significantly from others such as in Europe.

Chinese suppliers catching up

The importance of China’s domestic suppliers is growing hand in hand with the wind energy mar-

ket. If in the beginning the market was dominated by foreign companies such as Vestas from Den-mark, Spanish Gamesa, US General Electrics, German Nordex and Suzlon from India, the situ-ation has meanwhile changed. More than 50 % of the wind production capacity is in Chinese

hands today, says Junfeng Li. “In 2007, the Chi-nese contribution went past the 3 GW mark. For

2008, we expect the volume to have redoubled. Un-til 2012, we could see a leap from 10 GW to 15 GW.”

Wind farm in Qingdao with turbines from the German company nordex. Chinese manufacturers gain more and more in importance. Photos (4): Nordex

China’s government has high ambitions when it comes to wind energy: projects in this sector benefit from ge-nerous state subsidies. Photo: Sarah Grazioli

In the opinion of Klaus Lorenz of HUSUM WindEnergy trade fair, the year 2007 was “a mile-stone for the Chinese industry”. In that year, Goldwind and Sinovel from China entered the Top 10 list of the world’s largest wind turbine suppliers. “Goldwind’s product portfolio comprises 600 kW and 750 kW wind turbine models built under REpower licence. A second product line includes 1.2 MW and 1.5 MW direct drive turbines built with a licence from wind technology de-veloper Vensys Energy from Germany”. Recently, Gold-wind acquired 70% of Vensys shares and plans to build the 1.5 MW and latest 2.5 MW model. Sinovel, a subsidiary of Dalian Group, one of China’s major con-glomerates, obtained a licence from Austrian Windtec to build and sell a new 1.5 MW turbine.

“The issuing of technology licences for a limited geographical region is a common technology transfer method, but is as a trend increasingly replaced by re-sponding to customer preferences for ‘original de-signs’”, says Lorenz. “Engineering firms and technol-ogy providers from Europe and around the world assist their partners in China with state-of-the-art wind turbine development.” Husum exhibitor aerodyn Energiesysteme from Germany is an example of a technology provider adjusting to this trend. One project is a 1.5 MW turbine developed for Mingyang Wind Power Technology. Mingyang could become the first exporter of Chinese wind turbines to the United States.

Domestic industry gaining maturityWith the aim of assisting Chinese turbine and com-ponent manufacturers in the rising competition, China’s government enacted a range of measures. On the one hand, a lowering of import tariffs and value-added tax (VAT) was passed for components and raw materi-als used in the construction of wind plants. “This is an essential step for China’s industry as a large portion of component parts and raw materials has to be imported”, says Lou Schwartz, President of the US consultancy China Strategies, LLC. China’s govern-ment in turn reintroduced import duties for wind tur-bines below 2.5 MW. “China has been producing MW turbines for some time now, which is an indicator that domestic suppliers are gaining maturity”, says Schwartz. These measures make it easier for Chinese suppliers to sell turbines of up to 2.5 MW on the do-mestic market.

Technological progress is seen as an important step. “Prior to 2005, China was unable to produce wind turbines with more than 600 kW capacity. The first 750 kW turbine was made in 2005 and followed by a 1.5 MW model in 2006”, remembers CREIA’s

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Junfeng Li. “Meanwhile, the manufacturing sector is working on a 3 MW turbine that will enter the testing phase before the end of the year.” Junfeng Li believes that Chinese products will not be confined to the do-mestic market but will soon be available around the globe.

“That won’t happen so fast”, says Thorsten Herdan, CEO of the German Engineering Federation (VDMA) based in Frankfurt. “The technologies used by Chinese suppliers are still not mature enough to compete with European or US products.” In Herdan’s opinion, exports from China will become an issue, but only slowly over the next decade. Because of the country’s rising energy demand, the focus of the Chinese wind industry will for now be on the domes-tic market. Information on the current activities and production capacities, however, was not available through any major Chinese supplier.

Yet, BTM Consult’s latest report sees turbine ex-ports from China as a plausible next step. At the end of 2008, the manufacturing sector was shared among 58 domestic companies. Six months ago the sector had been home to only 40 companies. “Turbine pro-duction capacities are growing so fast in China, the sector could soon be looking at a surplus. Some com-panies will then probably try to export equipment to foreign markets”, notes Birger T. Madsen.

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Exports to European markets not expectedSteve Sawyer of Global Wind Energy Council does not believe that exports from China will appear on the European markets nor that they will have a larger impact on the United States. “Europe’s wind energy markets are fierce in competition. Why would Chinese manufacturers expose themselves to that en-vironment?” asks Sawyer. While, according to BTM Consult, Chinese turbines are approximate-ly 20 % cheaper than European or US products, the industry is far behind in quality standards, says Saw-yer. Odds are that the Chinese industry will focus on other markets such as in the Middle East, Pakistan or Nigeria. China’s readiness to enter export markets with wind products is only a matter of time, says Sawyer. “The conditions are getting better every day. One indicator is that China is about to cover the entire value chain. But so far I have not heard of any turbine exports.” However, attention must be paid to the ef-fects of the financial and economic crisis on the Chinese market. “The collapse in global demand hit China’s exports hard”, says Sawyer. “In a country with 1.3 billion inhabitants, economic stagnation is harsh for those in power.” China’s slow down of eco-nomic growth could also be a constraint for the wind sector. If economic deceleration is kept within its

bounds, says Sawyer, the country’s wind market could no doubt see further growth and continue to be attractive for domestic and foreign companies alike.

Markus Grunwald

Further Information:Chinese Renewable Energy Industry Association: www.creia.netNational Development and Reform Commission http://en.ndrc.gov.cn

nordex from Germany maintains a production facility in yinchuan.