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United States

Asian firms vie for slice of shrinking US wind energy pie

US: Until recently, Mitsubishi had been a lone wolf as an Asian corporation selling turbines in the US - if only with a marginal market share. Now, South Korean and Chinese manufacturers have joined the pack - and they are targeting not just the US but also Canada, which has never installed a utility-scale Asian-made machine.

South Korea's Samsung has launched the most audacious gambit, with plans to build four wind and solar component factories in Ontario, Canada, where it also plans to install 2GW of wind and 500MW of solar by 2016.

Chinese wind turbine manufacturer A-Power is teaming up with US firm Renewable Energy Group to build the first Chinese-owned turbine factory in the US, in Nevada (Windpower Monthly, April 2010), and has signed a 600MW supply deal with Texas-based developer Cielo Wind Power. Goldwind, China's second-biggest wind turbine maker, has installed the first Chinese machines in North America with the completion of the 4.5MW Uilk wind farm in Minnesota, and opened a Chicago, Illinois, office led by American management. Another Chinese manufacturer, Mingyang, has opened offices in Dallas, Texas. And at least eight Chinese turbine makers took booths at the American Wind Energy Association (AWEA) exhibition in Dallas in May, most of them for the first time.

To succeed on this difficult new playing field, many Asian manufacturers say their first task is to learn all they can about support mechanisms for wind, permitting processes and the complex US policy environment. Each of the 50 states sets its own rules for wind farm siting and permitting. Twenty-nine states and Washington DC have set renewable electricity standards (RESs) stipulating the amount of capacity or percentage of generation that must come from green energy resources. But RES rules vary widely. "There are two preparations," says Liu Dongyuan, president of Chinese manufacturer Guodian United Power. "The first is to know the US market, like government policy and requirements for connecting wind power to utilities. Second, we need to prepare production to meet the requirements of the US market." The company expects to finish its policy research phase by December and have a turbine prototype ready next year.

Korean manufacturer Unison has been attending AWEA conferences for five years and is one of the few Asian companies to have made US sales. But Unison's Kim Young Kyung acknowledges: "All the regulations are new to us: the grid connection, each state's subtle transport differences, the different electricity markets."

Hiring American management can help foreign manufacturers clear that hurdle, according to Lou Schwartz, president of consultancy China Strategies LLC. "Goldwind is on the right track because, essentially, (foreign manufacturers) are going to have to localise management in North America to succeed," he says.

Preconceptions

Perhaps the biggest challenge for Asian manufacturers is widespread scepticism among investors and developers about the quality of their products. As Dan Shreve, a director at Make Consulting, says: "Overcoming the perception of lower quality and lower-performance turbines is going to be critical." Josh Lutton is managing partner of Woodlawn Associates, a management consultancy for energy businesses. He says: "I've talked to bankers that don't trust the quality of Chinese turbines. They would vastly prefer blue chip."

He adds that the problem is both an assumption that Asian turbines will be of lower quality and a reluctance to take a chance on the unknown. "The issue is not that there is a quality problem," says Lutton. "It's that we don't know there isn't."

Lutton says the obstacle is greater for the Chinese than for Koreans. Americans are familiar with Korean names such as Samsung and Hyundai, which have done business in the US for a long time, have reputations to protect and staff to address any turbine problems that may arise.

To reassure developers, Chinese manufacturers have given tours of factories at home. They also point to some extensive track records: Sinovel has installed 3.5GW in China and Goldwind 2.7GW. Many Chinese machines rely on European designs. Goldwind uses technology from Germany's Vensys, in which it has a controlling stake. Envision, a smaller Chinese player, uses Danish design and engineering. The Chinese companies also boast a host of features they claim offer technological advantages over turbines by established rivals such as Vestas and GE. Mingyang says its 6MW machine is a completely sealed device, with integrated generator and gear parts, making it well suited to harsh offshore environments. Goldwind offers a permanent-magnet direct-drive machine, which eliminates the need for a gearbox. This, it says, cuts down on maintenance costs.

Luo Long Ying, of smaller Chinese manufacturer Windey, says there is one silver lining to the quality perception challenge: it makes the US a great place to start overseas expansion. "If you invest in a wind park in the US, people might think you have a high-quality wind turbine," he says.

One way manufacturers can demonstrate quality is to install turbines at projects they have developed themselves. Goldwind took that approach at the Uilk project, investing $10.5 million. Goldwind's wholly owned offshoot Tian Run USA operates Uilk (windpowermonthly.com, February 2). But other manufacturers choose instead to pursue local partnerships in everything from design and supply chain to development. Many say they are considering US-based manufacturing. Goldwind's US chief executive, Timothy Rosenzweig, says the company expects to start assembly on hubs and nacelles in the US next year. Goldwind has yet to decide on a factory location, but Rosenzweig spoke with representatives of several potential host states, including Ohio, at the AWEA conference. Guodian says it hopes to start US manufacturing in 2012, while Unison says it will begin in maybe two to three years.

By emphasising their benefit to local economies, foreign manufacturers are trying to thwart another barrier to entry. "Protectionism is absolutely a challenge," says Schwartz. He cites A-Power's deal to sell 240 2.5MW turbines to Texan developer Cielo Wind Power. The deal acted as the spark for New York Senator Chuck Schumer to recently introduce legislation that would prohibit federal grants from supporting foreign companies - even though Chinese blade maker HT Blade was planning a US factory to supply the Cielo wind farms at the time. Lutton says: "It adds to some developers' perceived risk in using turbines and financiers may not want to get involved."

Some manufacturers take this in their stride. "Protectionism can be found in any place," Unison's Kim says. "It's not exceptional." Shreve, for his part, downplays the importance of Schumer's bill. "I would hesitate to say it's indicative of a movement towards protectionist policy," he says.

Lost advantage

Traditionally, the prime selling point of Chinese turbines has been lower prices made possible by rock-bottom labour costs at Chinese factories (see story, page 71). Even when shipping costs are factored into prices for Chinese turbines sold in the US, the machines still sell at a discount to US-made products. That advantage could be lost: while US factories could help smooth the way for Chinese firms politically, the need to pay US factory workers much bigger salaries would require Chinese firms to set higher prices for those turbines. Mingyang has a memorandum of understanding with the city of Dallas to consider opening a factory there, but managing director Wang Song says that costs such as construction, operation and labour will need to be looked at before the firm can open a production base.

Even if they continue manufacturing in Asia, these companies still face threats to their low prices. "There's an intensive price pressure in the US marketplace based on lower electricity demand and lower power pricing," Shreve says. This has pushed down prices for wind turbines manufactured by Western suppliers, eroding their premium over Chinese and Korean machines, he adds.

What's more, Schwartz says, the field for American developers' preferred turbine sizes - those around 1.5MW - is crowded. This is pushing the Chinese to develop larger machines in the 3MW and 5MW range, where their price advantage is much smaller.

Given these variables, it is difficult to quantify Asian suppliers' price advantage. "We haven't seen any real substantial wind farms being built as of yet to indicate what commercial pricing would be," Shreve says. Asian manufacturers could distinguish themselves in other ways, however. Offering project finance could be one avenue. Envision says it offers developers a variety of financing options, including Envision taking a majority ownership in projects. The strategy has precedent of a sort: the Chinese government's export-import bank has provided low-interest loans to African countries to support overseas sales of Chinese turbines (Windpower Monthly, December 2009). It remains to be seen whether this model is applied to the US.

China consolidates

On one hand, Chinese suppliers venturing into the US market are set to become leaner and more competitive. The Chinese government has drafted regulations to shrink the field of 80 turbine manufacturers. Only about 40 of these manufacturers have actually installed turbines. The draft regulations would require suppliers to manufacture turbines of at least 2.5MW and achieve annual production output of at least 1GW to be eligible for benefits relating to taxes, land use and bank loans. The companies will be required to establish research-and-development teams with expertise in aerodynamics, structural analysis, software development and many other areas (Windpower Monthly, May 2010). This could cause a wave of mergers and acquisitions within the Chinese wind industry - and the smallest players could fall by the wayside. Renewables consultancy Make expects the manufacturers that remain to find it easier to gain customer confidence abroad.

Still, Asian firms may be slowed by the same drop in demand that threatens all manufacturers. January to March this year saw the US industry's lowest quarterly installations since 2007. Industry leaders such as Steve Bolze, chief executive of GE's power and water division, say full-year US wind installations could drop as much as 50% from 2009 levels. "Given that the available market is shrinking and capacity coming in from new US and European manufacturers is expanding rapidly, it's going to be difficult for everyone to get their fair share of orders," Lutton says. The pack of wolves will indeed have to shed a few members, it seems, to survive the lean times ahead.

MISUNDERSTOOD SENSATIONALIST VIEW BREEDS MISSED OPPORTUNITIES, writes ERIC PRIDEAUX

With every year, the wind sector reflects more vividly the push and pull, the give and take, of geopolitics. And never is that more true than when the US and China interact on the global energy stage.

When the mass media tune in, they often opt for drama over analysis, with the result that valuable lessons on renewable energy are overlooked. That happened in March, when law firm Dewey & LeBoeuf published "China's Promotion of the Renewable Electric Power Equipment Industry". The 96-page report was written for the National Foreign Trade Council, a Washington, DC-based business organisation. Headlines portrayed the report as a scathing condemnation of China's wind industry. One declared: "Report says China is squeezing US firms out of its massive wind-power market", while another claimed: "China uses every protectionist policy available to build a globally dominant renewable energy industry."

Dewey & LeBoeuf's study does examine, in detail, China's preferential treatment of domestic wind firms - but more soberly than the headlines imply. "The development of the Chinese industry has benefited dramatically from government measures favouring procurement of domestically made equipment, which have ensured the producers a large and growing market for their products," it says. It also reports that in early 2009, all foreign turbine manufacturers competing for National Development and Reform Commission (NDRC) wind power concession projects were disqualified on technical grounds within days of bidding. Many European suppliers, it says, simply gave up bidding.

Finer points

The media, however, missed the fact that the report is no mere list of trade grievances, but an intricate case study - presumably aimed at policy makers - of how China was able to spawn the largest global wind market and three of the world's top-ten wind turbine makers.

The final impression is that China has got where it is through long-term strategy rather than coddling of domestic suppliers.

The report describes how, in the early 1980s, China's blustery Inner Mongolia Autonomous Region (IMAR) began developing wind farms to provide power to remote rural communities. It then chronicles subsequent policy ensuring wind lost no momentum. The government's "863 Programme" shifted China's scientific focus away from military technology towards civilian fields including energy. Conceived in March 1986 under the stewardship of then-leader Deng Xiaoping, the programme got its name from the year and month of its inception and helped produce China's first megawatt-class wind turbine.

The "973 Programme" of 1997 supported further basic research in green energy, including the development of utility-scale renewables plants. In the following five years, the Ministry of Science and Technology subsidised additional research and development of 600kW turbines. Three years ago, the NDRC and the Ministry of Science and Technology began the International Science and Technology Cooperation Programme in Renewable Energy to increase absorption of foreign technology. Of 103 agreements signed with 97 countries, many involve renewable energy, according to the report. There is keen interest in developing offshore wind turbines, many of which are designed with foreign markets in mind (Windpower Monthly, December 2009).

Military alliance

Dewey & LeBoeuf's report also highlights the different attitudes towards how wind and military technology should co-exist. The Chinese government, it says, in 2007 told military equipment suppliers to speed development of technologies with wind power applications. Such consideration appears lacking in the US, where a growing number of wind farms are running into opposition from military and civilian aviation authorities claiming wind turbines disrupt radar. The US Department of Defense wants the wind industry to shoulder the expensive cost of software to alleviate the problem (Windpower Monthly, June 2010).

The law firm weightily concludes: "China's renewable energy objectives and policies have important global economic significance. If China is successful in meeting its goals, it will soon become the global largest site for new investment spending in renewable energy in the world at a time when the world market for renewable energy investment now exceeds that for fossil fuel investments."

Nervous about falling behind, some US renewables proponents say the US must, like China, create more centralised support for wind and other green energy or lose out to the Asian behemoth.

"The United States' competitors and trading partners are not standing still," warns the Center for American Progress (Cap), a left-of-centre policy think tank. As if to shame US policy makers into action, Cap notes that China claims to add 100,000 renewable energy jobs every year. On a dour note, Cap meanwhile points out that US January-March wind power capacity installations were the lowest since the first quarter of 2007.

To keep up, the US needs a Clean Energy Deployment Administration, or Ceda - a federally run, non-profit green bank to finance renewables industries, says Cap. The UK is considering such an institution.

According to Cap, Ceda would orchestrate clean energy investment, weave together divergent strands of energy innovation from across federal agencies, establish overarching technology goals for clean electricity and establish a range of economic incentives - all with an eye to reducing risk for financial backers of green industry. "Ceda is needed now," says Cap.

The organisation says broad support exists for a Ceda mechanism and that various proposals are working their way through Congress. If the Senate passes a climate bill including a Ceda, the proposals will be combined and sent to President Barack Obama for approval. This would mark a new era in cross-cultural learning. While stopping well short of China's command-and-control approach to wind, the new agency would mirror its long-term vision - demonstrating that not all lessons have been lost after all.

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