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Foreign firms slash prices in bid to compete in China

CHINA: Foreign-funded wind turbine producers in China are slashing turbine prices by big margins on the Chinese market to acquire larger market shares, according to senior sources in China.

Manufacturers such as Vestas want to enter the Chinese market
Manufacturers such as Vestas want to enter the Chinese market

These foreign turbine producers, including GE and Vestas, have cut prices by about 20% from those of last year because of ferocious market competition, according to China Water Investment Group Corporation, a leading investor in hydropower and wind power projects in the country.

Foreign producers have eased turbine prices to CNY 5,200-5,300/kW ($765-780/kW) on the Chinese market this year. The popular 1.5MW machine is now selling at about CNY 7.8 million ($1.15 million), within range of Chinese plant-made turbines that are quoted at CNY 7-7.5 million ($1.03-1.10 million), says He Yan, vice-general manager of wind investor Huaneng New Energy Industry.

In 2009, turbines made by foreign plants were sold at about CNY 6,000/kW ($883/kW), while Chinese-made turbines went for around CNY 5,500/kW ($809/kW).

According to a senior manager of central China's Hunan XEMC, who refused to be named, Vestas dropped its price to CNY 5,800-5,900/kW ($853-868) in a recent public tender for wind turbines in the Chinese market. That price remains about CNY 1,000/kW ($147/kW) higher than its Chinese-funded counterparts, but much lower than 12 months ago.

"This price is about 15% lower than that of last year," says the XEMC senior manager. "Vestas was possibly able to cut its price because it made big profits in China in previous years."

But Jiang Qian, chief researcher of new energy industry from China Investment Consulting, a leading market research firm in the country, says that foreign turbine producers cut prices partly because of their poor performances in the first quarter.

According to a research report of China Investment Consulting on the Chinese wind power industry, in the first quarter of 2010, GE's wind power business incomes fell 20% year on year, and Vestas' plunged 32%, compared with the same period last year. Jiang says that the sluggish performances of GE and Vestas in the first quarter were associated with low tide in the US wind power market.

In the first quarter, the US installed only 539MW, down 82.5% from the 3.1GW in the same period of last year. The US is the biggest market for GE. In 2009, GE turbines amounted to 40% of US total installed capacity.

Sales slump

Meanwhile, the US is the second largest market for Vestas and accounts for about 30% of Vestas orders. Jiang says the US wind power market is likely to keep adding only 6.5GW in 2010, compared with 9.9GW in 2009, because of a slump in demand for renewables and construction bottlenecks (see feature, page 53). Jiang says GE and Vestas, seeing a slowdown in the traditional priority market in the US, are now - quite naturally - focusing their attention to the emerging market of China. To compete with growing local turbine producers for market share, foreign enterprises are slashing prices to attract buyers - rejecting their long-standing premium price strategy.

In October, Goldwind cut by 14% the 2008 ordered price of 1.5MW direct-drive permanent magnetic turbines, totalling 34 units, for a wind farm in northwest China's Jiuquan, in Gansu province. During that period, foreign turbine producers based in China eased prices by about 10%.

In December 2009, China's National Development and Reform Commission stipulated to end the local content rule, launched in 2005. The rule stipulated that 70% of components in turbines must come from local sources.

Hou Wentao, a research fellow from Xiangcai Securities, central China's Hunan province, says when the 70% localisation rule was valid, Chinese wind farm investors would not buy many turbines from foreign turbine plants, even if they lowered prices, as many breached the rule.

"But with the 70% localisation rule abolished, foreign turbine producers are displaying greater competitiveness," he adds. "If Vestas and other leading foreign turbine plants are willing to lower prices, they might rapidly expand their market shares in China."

In 2009, China installed 13.8GW of wind turbines, up 124% over the previous year, according to the China Wind Energy Association. UBS Securities, a Sino-Swiss joint venture based in Beijing, estimates that China might have the capacity to produce 22GW in 2010, but market demands might be only 14.2GW.

Jens Tommerup, president of Vestas China, says that its building of long-term relationships with its component suppliers in China has helped it ease costs while retaining quality.

He says Vestas will not lower prices at the sacrifice of product quality, adding that the company must ensure wind turbines operate soundly during their life cycle. But, he says, in the long run, by co-operating with component suppliers, Vestas is sometimes able to lower the cost. GE was not available for comment.

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