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China

China's service market grows as installations fall

CHINA: In the world's largest wind market, developers and manufacturers are looking to the country's burgeoning maintenance market to save them from plummeting profit margins. Meanwhile, developers are pushing for extended warranty periods, reports Wu Qi.

Rapid growth in wind farm installations across China over the past few years has created a thriving post-warranty maintenance market, estimated to be worth more than CNY 100 billion ($16 billion) by 2020. This is significant considering a slowdown in new installation and turbine makers' plummeting profit margins.

The estimate of the market's value is based on the current average operation and maintenance (O&M) costs at Chinese wind farms of CNY 0.05/kWh ($0.008/kWh) and the assumption that annual availability of wind turbines averages 2,000 hours. Under the country's wind-power development plan, China will have 150GW of capacity installed and connected to the grid by 2020.

By the end of last year, China had a total of 62.4GW in wind installations, according to the China Wind Energy Association, which equals 45,894 wind turbines that will require 20 or more years of post-warranty maintenance. To fulfil its 150GW target, China will need to install over 10GW annually over the next eight years. This means by 2020, China will have more than 100,000 wind turbines.

The warranty period in China has historically lasted just two years, meaning the number of turbines coming out of warranty every year closely reflects the huge growth in installations. Many specialist companies have sprung up to grab a share of this growing market, including subsidiaries of wind-farm developers, turbine manufacturers and third-party companies.

Keeping services in-house

More than half of all wind farms are developed by China's top five state-owned power groups, which have their own O&M subsidiaries or divisions to provide maintenance services.

Longyuan Power, China's largest wind-farm developer, set up a subsidiary, Zhongneng Lianchuang, in 2007. It had supplied turbine maintenance service and spare parts to more than 100 wind farms totalling 9GW by the end of 2011. Developer Datang Renewables also has a specialised O&M company.

In addition to serving wind farms of its parent company, Xiehe Yunwei, the maintenance arm of China Wind Power Group is offering O&M services to other companies. It signed an outsourcing contract in October 2011 to service Tianjin Jiyunhe Wind Farm, totalling 4.5MW. Other leading wind farm developers have their own O&M service sections, but are yet to establish stand-alone subsidiaries.

Owner efficiency

Leading developers choose to maintain turbines themselves, believing they can improve efficiency with scaled services, concentrated procurement to lower costs and unified management. These all ensure industrial standards, replicable management modes and assessment indexes, industry officials say.

Smaller developers without the resources of the big state-owned power companies usually outsource O&M work because they do not have the capacity to carry out maintenance themselves. Turbine manufacturers tend to be their preferred outsourcing partners.

In 2005, Goldwind set up subsidiary Tianyuan Creation to offer O&M services covering the whole lifecycle of a wind farm. "We expand our business by elevating the turbine availability and quality, while lowering operational risks," says Cai Tao, general manager of Tianyuan Creation.

Guodian United Power is another leading turbine maker that split off all-round O&M services as an independent business, establishing Guodian Sida Technology late last year.

Third-party challenge

While the subsidiaries set up by big developers or manufacturers tend to offer all-round O&M services, third-party companies largely focus on specific fields, such as blade maintenance services, which is offered by Baoding Shenglian Wind Power Technology.

Third-party companies can take up considerable market share because they quote lower service prices than turbine makers and are often based locally to wind farms and can respond quicker.

However, third-party companies also face many challenges in this competitive market. One of the key issues is that wind turbine manufacturers will not provide them with core technical information, such as operation instructions on replacing major components and inspection standards after the replacement. The operation manuals that turbine makers supply to wind farm owners are not sufficient to solve major technological problems. Manufacturers are also reluctant to supply spare parts to outsiders.

Despite these challenges, third party companies do have market potential, if they can effectively control costs and work closely with clients they can clearly demonstrate their service values to them.

Zhangbei county in northern China's Hebei province currently has 1,300 wind turbines totalling more than 1GW. The national plan has it earmarked as a 10GW-level wind power base, with 5GW installation by 2015, according to Huang Haixin, director of Zhangbei new energy office. "Now, wind turbines in our county have gone out of the warranty period in succession," says Huang. "Small developers find it hard to maintain by themselves and it is costly to extend maintenance contracts with turbine makers. So they expect to have third-party companies to offer O&M services with cheaper prices and professional expertise."

Buyers' market

Chinese wind farm developers allocate low budgets for O&M. They prefer to force turbine makers to extend the warranty period. And they are able to do this. Due to surplus production capacity from 80-odd turbine makers, the Chinese wind turbine market has become a buyer's market.

To secure market shares, most turbine makers are having to accept the demand of wind-farm developers. They have extended the warranty period to three, five or ten years. Some even offer 20 years' warranty service.

Long Xin, deputy general manager of XEMC, says that extending the warranty period will put turbine makers in a tight spot. Manufacturers have profit margins of less than 10%, yet under the present payment mode they must leave 10% of the payment in the hand of wind-farm developers until the end of the warranty period, he adds.

MALFUNTIONS COMPONENT FAILURES

There have been occasions where issues with turbines or components have created major operational problems for wind-farm operators.

- In 2011, Wuxi Tianqi Zhufeng Technology, a bamboo blade producer, saw 100 sets of blades worth CNY 70 million suffer cracking problems at the tip or root of the blades.

- In 2008, Yongji Motor, another component supplier, had to replace about 200 electric engines that Dongfang Electric used to produce turbines.

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