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Chinese regulators will squeeze smaller firms in wind power sector

CHINA: China is preparing tough new regulation aimed at further strengthening its biggest wind turbine manufacturers and weeding out the weakest rivals.

Under the Ministry of Industry and Information Technology's (MIIT) Admittance Standard draft regulation, manufacturers unable to produce wind turbines with capacity of 2.5MW or greater and achieve annual output of at least 1GW would become ineligible for government benefits related to tax, land use and bank loans.

Manufacturers will need to have produced wind turbines with combined capacity of at least 500MW at a factory before applying for authorisation to expand the facility. At least 200 megawatt-class turbines will also need to have undergone 240 hours of test operations.

In addition, the draft regulation requires manufacturers to set up research-and-development teams with expertise in a long list of specialties, including aerodynamics, structural analysis and software development.

Turbine producers that fail to fulfil these criteria will have six months to make the grade. If after that time they still fall short, they will lose their government entitlements. They will also be excluded from the Directory of Quality Wind Turbine Producers, published by MIIT and the National Development and Reform Commission.

The regulation, on which the government was inviting public opinion late last month, does not require the approval of the national legislature, so its implementation is almost certain.

Stringent regulation

The tighter controls follow a decision last August by the State Council, China's cabinet, to include wind turbine production among industrial sectors deemed to have excess output capacity.

Top wind turbine suppliers such as Goldwind, Sinovel and Dongfang Electric stand to benefit, as they will have little difficulty meeting the new standards. Suppliers such as Shanghai Electric, XEMC and Mingyang are expected to face greater challenges. They are ranked among China's second tier of wind turbine manufacturers, with annual output of between 100MW and 800MW last year.

Third-tier turbine producers, with 2009 output below 100MW each, are likely to be forced to merge with larger competitors or retreat from the sector. Some companies have still only produced prototypes.

Many claim that the stringent regulation is needed to respond to overheating at China's 83 wind turbine manufacturers. If every factory planned by these companies was eventually constructed, the country's total annual production capacity would exceed 50GW - several times the 13.6GW of wind power capacity that China installed last year.

Excess capacity

"It has become obvious that China's wind turbine production sector has excess capacity," says Zhou Sigang, a section chief at the China Machinery Industry Federation.

Zhou, a co-author of the draft regulation, adds that checking expansion of turbine production is necessary to "encourage competitive enterprises to become bigger and stronger".

The measure marks a new approach to encouraging renewables. In 2006, China set an ambitious target of supplying 15% of primary energy from renewables by 2020. The following year saw a mandatory market share of electricity from renewables.

In 2008 it mapped out seven wind projects exceeding 10GW each, and last July it improved fixed prices for electricity generated from onshore wind.

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