Trend in China's Wind: Larger Turbines

The development of renewable energy is concerned not only with adding more new capacities, but also setting up the right projects at the right places. In terms of wind energy, as we talked about in last week’s class, China is the world #1 in new installation, but it faces significant challenges in grid integration, insufficient load factors, mismatch of source and use locations, etc. This Bloomberg New Energy Finance article presents an opinion from industry practitioners on the technological trend in the wind sector: though the common 1.5MW turbines dominate the market, the installations of larger turbines (over 2MW) are increasing. Also, wind farm projects are more regulated than before to ensure a sustainable expansion path.

http://www.bloomberg.com/news/2012-02-17/larger-turbines-may-help-china-s-wind-developers-ming-yang-says.html

China Has Built Almost Half the World’s Wind

News item from Greentech Media.

The world built 42.2 gigawatts of wind in 2011; 18 gigawatts were from China.

see
http://www.greentechmedia.com/articles/read/stat-of-the-day-china-built-almost-half-of-world-wind/

More Capital/Overcapacity for Wind in China?

From the Wall Street Journal's China RealTime Report
(March 31, 2010)

Gone With The Wind: Capital for China’s Turbine Makers

“A great wind is blowing, and that gives you either imagination or a headache.” Catherine the Great surely was referring to capital raising for China’s wind turbine makers. As Dow Jones Investment Banker reports, for them, a headache is more likely.

Wind turbines in Gansu province, China

Last year was a good time for China when it became the largest wind market by annual installed capacity at 13 gigawatts, according to the Global Wind Energy Council.

Unfortunately that growth heralds overcapacity for Chinese turbine makers, suggesting a shake-out for some smaller names after 2009’s aggressive build out. That should, of course, play to survivors’ advantage in the long-term.

Meanwhile, for the clutch of wind-farm operators reportedly toying with a Hong Kong listing the business outlook is probably better, though the recent IPO market hasn’t been forgiving.

Favorable macro-tailwinds and preferential policy over the last five years have helped China’s wind industry. For example, farm operators are aided by on-grid tariffs for wind being higher than fossil fuels’, while local component-makers gain from rules ensuring at least 70% of turbine components by purchase value are made domestically.

And in the seven years to 2008 electricity generation grew at a compound annual growth rate of 12.8%, eclipsing China’s real GDP CAGR of 10.5% over the period.

And the bad news?

First: friendly market-share rules don’t translate into supporting margins when new entrants flood in.
Turbine makers, for example, have increased from six before 2005 to around 70 today. Meanwhile Xinjiang Goldwind Science & Technology Co. Ltd., one of the country’s top three turbine manufacturers by sales, saw its Ebit margins decline to 16.7% last year against 21.5% in 2006.

Smaller, unlisted firms likely experienced a similar trend, aggravated by lower margins given their higher operating leverage.

With farms shifting toward larger turbine sizes manufacturers are being pushed into capex for new production and R&D in an already highly competitive market.

Additionally, big farm operators gravitate to suppliers with a performance history, which favors larger, established outfits. China Longyuan Power Group Corp. - China’s largest wind-farm operator by capacity - sourced three-quarters of its turbine capacity from Gamesa and Goldwind at the end of June last year. This implies the domestic component sector is primed for realignment, especially among the second tier makers. That isn’t a great backdrop for listings or capital raising but survivors’ margins should benefit from less competition.

Wind farm operators -China Huaneng Group and China Datang Corp,’s renewable power unit - may have better prospects given superior earnings visibility over turbine assemblers.

Longyuan floated in Hong Kong in December. It has outperformed the MSCI China index by 5.9% since debuting - yes, with a somewhat erratic trajectory -making it one of the Hong Kong’s more successful IPOs since December.

A composite index of renewable energy power providers China Windpower Group Ltd. and China Power New Energy Development Co. has outperformed the MSCI China by about 30% over the past six months.
However, in contrast with most of Asia, both mainland and Hong Kong equity markets have logged negative returns since January and foreign fund flows into Chinese equity markets have been poor lately, underscoring the tougher environment for IPOs there.

Moreover, internal rates of return for 50 megawatt farms are around 10%, industry observers say, which sounds respectable, until you read Credit Suisse’s estimate that a 40%-equity financed 50MW Chinese wind farm probably generates a return on equity of some 4-6%.

That could be juiced with leverage but, with Chinese monetary and lending policy tightening, that mightn’t be so easy or appealing for equity investors.

So Chinese wind farm operators may still have their work cut out convincing investors that now is the time to bet on wind.

– Jamie Miyazaki

http://blogs.wsj.com/chinarealtime/2010/03/31/gone-with-the-wind-capital-for-chinas-turbine-makers/

Debate over excess capacity blows up in China's wind power sector

www.chinaview.cn

A few of the main points from the article are posted below, the full article is linked above. enjoy!

BEIJING, Nov. 23 (Xinhua) -- A split has emerged in China's wind power industry over its future development and government policies intended to avoid "excess capacity."

Some of China's leading large-scale wind power businesses have been lobbying the government to slow the growth of the industry because of alleged over-capacity

They appeared to have won the debate in September when the State Council, China's Cabinet, approved a document from the National Development and Reform Commission (NDRC) and nine other ministries, stipulating the NDRC would hold back funding or approval for projects in industries with production overcapacity.

Wind energy was among the industries listed.

But the "over-capacity of production" charge is untrue, argued Qin Haiyan, secretary-general of China Wind Energy Association (CWEA).

"The production overcapacity, as widely reported in the media or calculated by some government agencies, is based on the development programs of many enterprises. It is open to question whether these capacities will be realized," said Qin.

"I strongly oppose the policy of restricting businesses from other manufacturing sectors from entering the wind power sector. And I strongly oppose leading enterprises lobbying the government to restrict the development of the industry on the excuse of excess capacity."

PROMISING INDUSTRY

Before 2004, China's wind power industry was almost non-existent. Its total installed capacity of wind power has grown about 20-fold from 764,000 kilowatts in 2004 to 15.85 million kilowatts by September 2009.

China is expected to have 120 million to 150 million kilowatts of installed wind power capacity, totaling 7 to 9 percent of the national total installed electricity capacity, in 2020, according to the China Energy and Environment Technology Association (CEETA).

PROGRESS

According to CWEA, in 2004, Chinese enterprises accounted for only 18 percent of the total wind power installed capacity on the Chinese mainland, while foreign enterprises -- mainly from Denmark, Germany and Spain -- provided 82 percent. By the end of 2005, China had 1,864 wind turbines, producing 1.266 million kilowatts of power. Foreign businesses occupied 77.3 percent of the wind turbine market as well as exclusive control of high-end technological equipment.

The proportion was reversed by the end of 2008, when Chinese producers and joint ventures had 61.8 percent of the country's wind power equipment market.

Although the technologies for the most commonly used 1.5MW turbines are largely made with technologies introduced from Europe, some Chinese plants have begun to jointly design such turbines with foreign counterparts, in a bid to eventually develop them independently.

Much of this progress in forming a complete industrial chain was attributed to the 70-percent localization requirement policy, promulgated by NDRC in 2005.

This required that at least 70 percent of wind power equipment to be produced in China. Wind farms failing to adhere became ineligible for construction approval.

The aim was to reduce costs of wind power generation, speed up wind power industrialization, and most importantly to encourage multinationals to invest in and transfer technologies to China.

Qin Haiyan, secretary-general of China Wind Energy Association (CWEA). "We cannot restrict competition simply because of excess capacity. Latecomers often become superior in emerging industries.

"We will promote technological progress and lower costs through market competition. We do not have to worry there are so many competitors at a specific stage."

China Drops ‘70% Home-Made’ Rule for Wind Turbines

by Bloomberg news

Jan. 11 (Bloomberg) -- China, the world’s third-biggest producer of wind power, has dropped a rule stipulating that more than 70 percent of the wind turbines used in the country must be made domestically, whether by foreign or local companies.

The policy has been scrapped recently and there is no longer a quota, Shi Lishan, deputy director of renewable energy at the Beijing-based National Development and Reform Commission, said by telephone today. The change will spur foreign investment in the industry, according to a China Business News report.

Overseas companies have lost out on wind-energy projects as bidding criteria make it impossible for them to compete with domestic developers, the European Union Chamber of Commerce in China said last year. Still, China relies on foreign expertise for wind-turbine design and development and locally made components haven’t met global standards yet, Shi said last month.

“If China has to wait for the quality of their wind turbines to catch up with foreign countries, it’ll have to wait for a while,” Gordon Kwan, the head of energy research at Mirae Asset Securities, said by telephone in Hong Kong. “Countries like Spain and Denmark are already very successful in wind-power generation. If China can immediately apply the technology, that could speed up its plan to increase wind in their energy mix.”

The world’s second-biggest energy-consuming nation aims to increase its capacity to produce power from wind fivefold by 2020 to help combat climate change. China’s wind-power capacity will rise to 100,000 megawatts by then from at least 20,000 megawatts in 2010, National Energy Administration chief Zhang Guobao said on May 26.

Foreign Investment

Tempe, Arizona-based First Solar Inc. and Copenhagen-based Vestas Wind Systems A/S, the world’s largest maker of wind turbines, are among companies expanding in China.

“The ruling will make no difference to our operations, as 70 percent to 80 percent of our turbines are already made in China,” Andrew Hilton, a spokesman for Vestas, said by telephone in Beijing.

China has 70 wind-turbine makers with a capacity of about 15,000 megawatts a year, Dave Dai, a Hong Kong-based analyst at CLSA Research, said in a note on Sept. 2.

The policy change is a way of deregulating the industry, Mirae’s Kwan said. “This way, China can choose more easily between domestic or foreign investments,” he said.

Foshan to Build China 1st High-altitude Wind Power Project

by energy central

FOSHAN, Jan 14, 2010 -- SinoCast Daily Business Beat

An official of the United Nations Industrial Development Organization Investment & Technology Promotion Office-China yesterday confirmed that China's first high-altitude wind power project would be settled in the southern city of Foshan, Guangdong Province, next week.

With an estimated investment of CNY 400 million, the to-be-built project will form an annual power generation capacity of 100MW or so. Compared with the fossil fuel and common low-altitude wind power projects, it is much lower in terms of both the construction and power generation costs.

After the construction, the power generation here will be cost at CNY 0.22 per kilowatt-hours (KWH), compared with the province's average, CNY 0.36.

Charming by the abundant wind resources in China, the builder is much confident of completing this project. According to its work procedure, a kind of special kite will be flied in the sky, generating the mechanical energy via extension. Ultimately, the mechanical energy will be transformed into electric power through generators.

PreIPO Capital Partners agrees to invest CNY 50 million in the Foshan-based project, and the rest will be burdened by some local companies and the government of Nanhai District, Foshan.

China Challenging the United States for World Wind Leadership

URL: China Challenging the United States for World Wind Leadership

By J. Matthew Roney (Dec 10, 2009)

Leadership of the global wind market is about to change hands. The United States—the birthplace of the modern wind industry—has held the top spot in new installations since 2005, growing at 50 percent a year and adding a record 8,540 megawatts of wind generating capacity in 2008. But if the credit-crunched U.S. industry adds only 8,000 megawatts in 2009, as anticipated, China’s new installations of some 10,000 megawatts will make it the world leader in annual additions. Having doubled its installed capacity in each of the last five years, this relative newcomer is now poised to dominate the wind energy industry for years to come.

Nowhere is China’s bid for wind supremacy more evident than in its new Wind Base program. In 2008, the National Energy Administration selected six wind-rich locations as sites for wind mega-complexes of between 10,000 and 30,000 megawatts each. A seventh has since been added to the list. In August 2009 construction began on the first project, a 13,000-megawatt complex in the northwestern province of Gansu. When completed, these Wind Bases will total more than 110,000 megawatts of capacity, the generating equivalent of 110 coal-fired power plants.

The emergence of China as the new world wind market leader in 2009 follows an extraordinary 2008, the latest year for which complete data are available. World wind generating capacity grew 29 percent, adding a record 27,000 megawatts to reach 121,000 megawatts installed worldwide, enough to satisfy the residential electricity needs of nearly 200 million people.

China to be #3 in Wind

A government official said China will become the world’s third-largest producer of electricity from wind by the end of 2009.

According to Shi Lishan, vice-president of the Renewable Energy Department in the National Energy Administration, China's installed wind power capacity reached 20 GW in 2009, overtaking Spain. China now ranks behind only the US and Germany.

The US had installed capacity of 25.2 GW of wind power in 2008 (about 20.8% of world capacity), Spain 16.8 GW and China 12.2 GW, according to the Global Wind Energy Council (GWEC). (Global wind capacity reached 121.188 GW last year.)

"In terms of scale and rhythm, the development of wind energy in China is absolutely unparalleled in the world", said last month Steve Sawyer, secretary general of GWEC. "If they maintain the current trend they will be the first in the world in terms of installed capacity at the end of 2011."

China to be 3rd biggest wind power producer: media (12/30/2009)
CN:China ranks third in worldwide wind energy (1/1/2010)
China To Become Third-Largest Windpower Producer (1/1/2010)