China

China

Winning prices will see China projects run at a loss

CHINA: State-owned power companies bid low to grab market share and increase their power generation from renewable energy sources.

Cut-throat price competition in China's first public tender for offshore wind power projects may be leading the industry down a dead end. The tender results, totalling 1GW across four counties in east China's Jiangsu province (see map), were announced by China's National Development and Reform Commission (NDRC) in October.

The four projects should have been lucrative but industry officials believe the low bidding prices mean the winners will run projects at a loss. The bidders, who were exclusively large-scale state-owned power companies, have their own business reasons to win projects at low prices, industry officials say.

Market grab

China's top five state-owned power companies - Huaneng, Datang, Guodian, Huadian and China Power Investment, along with their subsidiary new energy companies - all participated in the process.

China Power Investment offered the lowest bid for three of the four offshore and inter-tidal wind farms, its lowest offer being CNY 0.6101/kWh ($0.0915/kWh), nearing the benchmark for land-based wind farms to integrate wind power to the grid. But offshore wind farm construction costs are two to three times higher, say industry officials, due to the additional complexity of building, installation and maintenance.

China's only existing pilot offshore project, the 100MW Shanghai East Sea Bridge offshore wind farm, sells power to the grid at CNY 0.978/kWh ($0.1467/kWh), after tax.

An official with Shenhua Guohua says: "Offshore wind farms, if they want to make profits, must sell wind power to the grid at no less than CNY 0.8/kwh ($0.12/kWh), even when local governments offer subsidies." The winning bids all fall below this level.

The enthusiasm of large state-owned power firms to grab market share with low-priced projects has crippled the Chinese government's objective of finding the bottom-line price for offshore wind power development through public tender of concession projects.

In 2007, NDRC introduced a compulsory market quota for power generation from renewable energy sources (excluding hydropower) for power firms with more than 5GW installed capacity. They must raise the proportion of renewable energy sources in their total installed capacities from 3% in 2010 to 8% by 2020.

This means that, in order to increase their thermal power installed capacities and take advantage of China's abundant cheap coal, power firms must first raise their installed capacity of renewable energy. The losses they sustain in their renewable energy power business may be offset with profits from the thermal power business.

At the end of 2009, wind power made up 1.47% of China Power Investment's mix, 2.58% of Huaneng's and 3.43% of Datang's, which explains China Power Investment's aggressive attempts to invest in power generation with renewable energy sources.

Renewable energy sources will make up increasingly greater proportions of the power structure. But quality resources are finite - whoever strikes first prevails. It seems large-scale power companies are willing to suffer temporary losses to complete the task.

"Nowadays, large-scale power companies need installed capacities. It will be fine to have wind farms constructed, whether they can integrate to the grid or not," says an industry official who declined to be named. "In the future, power companies will meet higher apportioned targets in order to reduce carbon dioxide emission. They will pay higher taxes if they fail to meet the target. Therefore, the prices of wind farm assets keep soaring."

Subsidy issue

While the state-owned energy firms seem tolerant of low-bid competitions, industry officials disapprove of the strategy. They highlight the fact that Chinese wind farm applications for clean development mechanism (CDM) subsidies are frequently rejected because they cannot prove that the power could not have been generated without the subsidy (Windpower Monthly, September 2010). CDM subsidies accounts for about 10% of income for land-based Chinese wind farms.

Insiders are concerned that if the power companies in the offshore wind business make concessions on feed-in prices to gain market share, it will offer an excuse for more Chinese wind farms applying for CDM subsidies to be rejected.

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Windpower Monthly Events

Search more than 4,500 companies in the Windpower Directory

Latest Jobs