The next likely target, unofficial as yet, is 100 GW by 2020. That is only a little less than the entire global total for installed wind capacity in mid-2008. Even at 100 GW, China's wind potential will be far from exhausted. The technical potential on land is 250 GW, with another 750 GW available offshore. By 2050, China could have 600 GW of wind turbines turning, says BTM.
Driving the market is the government's climate change policy. With the country now producing more carbon emissions than even the United States, offsetting at least some of the growth in coal fired generation in China is a key aim, with renewables playing a significant role. A 2006 law sets a target for 15% of primary energy to come from renewables by 2020, requiring $251 billion in investment, according to China's National Development and Reform Commission. London-based market analyst New Energy Finance believes more will be required, putting the cost at $398 billion, or $268 billion if large hydro is excluded. At least $91.1 billion (34%) is expected to go into wind development, it says. Last year, investment in Chinese wind power was around CNY 24 billion ($3.28 billion).
Reliant on wind
Of all the renewables, China is expecting wind to provide by far the largest contribution to electricity generation. Under a plan from last year to implement the renewables law, all generators operating more than 5 GW of power plant must ensure that at least 3% of their capacity is non-hydro renewables by 2010, rising to 8% by 2020. In terms of energy delivery, at least 1% of electricity is to come from non-hydro renewables by 2010 and at least 3% by 2020. The 6 GW of wind power installed at the end of last year represented no more than 0.8% of total power capacity and provided just 0.2% of China's electricity. Coal-fired plant provided 83%.
Meeting the 1% renewables target in 2010 requires 40 TWh of renewable energy, given a projected annual electricity production by then of 4000 TWh from 900 GW of generating plant. By 2020, 200 TWh of renewable energy is needed to reach the 3% target. Solar and biomass are unlikely to make significant contributions to these goals, so that leaves wind, says Shi Pengfei of the Chinese Wind Energy Association (CWEA).
What it means is that the wind industry must install at least 5 GW each year in China for the next two years, on a par with expected additions for 2008, and around 8 GW a year in the decade to 2020. Industry analysts estimate the country's big generation firms alone will spend at least CNY 20 billion ($2.9 billion) annually buying wind turbines and components to meet the law. Taking the lead is Longyuan Electric Power, the renewable energy subsidiary of China Guodian Corporation. So far it has installed over 1600 MW of wind capacity, says Zhu Junsheng of the Chinese Renewable Energy Industries Association (CREIA). Longyuan is targeting 5000 MW by 2010. In China, not meeting government targets is unthinkable.
It will all be paid for by China's electricity consumers, backed by an assortment of government subsidies. The National Development and Reform Commission has set current purchase prices at CNY 0.51-0.61/kWh ($0.074-0.088/kWh) depending on the region and its wind resource (Windpower Monthly, July 2008). In deciding the price range, the government was guided by bids submitted by wind project developers for power purchase contracts under government development concessions.
Where will it come from?
From a standing start in 2005, it took just two years for China's domestic wind turbine makers to outgun their foreign rivals. In 2007, Chinese turbines made up 56% of all new wind capacity installed in the country, up from 41% in 2006. At the end of the first quarter of 2008, domestic suppliers were sitting on 86% of the nearly 20 GW of wind on order across China, up from 8.6 GW at the end of 2007, says Sebastian Meyer from Azure International. Foreigners held 11%, with 3% in the hands of joint venture firms. Azure is an industry consultancy based in Beijing, owned by the Dutch Econcern group.
"We see a continued decline in market share for foreign companies," says Meyer. "The end of the first quarter may have been the historic tipping point in which the market has shifted from majority international to majority domestic." In that period, foreigners supplied 39% of new installations, reports Azure.
Up to the end of March, international wind turbine suppliers such as Gamesa, Vestas and GE Energy, the leading foreign players, had supplied 48% of all wind capacity installed across China. So had their domestic counterparts. Sino-foreign joint venture companies accounted for the remaining 4%. But come the end of December and domestic players will dominate Chinese wind power, both in terms of cumulative capacity and annual installations. Increasingly, too, turbine components are of Chinese rather than foreign origin. "A strong domestic supply chain is being formed," says BTM Consult, noting that at the start of the year, 66 companies were covering the supply of eight key components. CWEA's Shi says this number has now topped 100.
Even so, foreign wind firms are continuing to ramp up their production capability in China (chart page 14). By the end of this year, China will have become the largest source of wind turbine equipment in the world. Annual manufacturing capacity in the country is expected to hit 11 GW within the next few months, says Meyer, rising to 15-16 GW by 2009/2010. Next year, a new array of Chinese made machines, also with multi-megawatt capacity ratings, is set to hit the market, squeezing foreign rivals further.
Installing wind turbines, however, is just part of the story. Getting electricity to the customer is becoming an increasing challenge. This year, around 5-6 GW of wind turbines will go up in China. Only the US could install more. "We've reached a critical growth point," says Meyer. Grid availability now becomes a limiting factor to Chinese market growth, he says.
Even China's ability to rapidly expand its grid network is no match for the speed at which the wind industry can get turbines in the ground. At the end of last year, 2 GW of the 6 GW installed was waiting to be connected to the network. Although that is now all online, much more grid capacity is needed (box, page 4). "Preliminary grid connection statistics suggest around 2 GW is still unconnected," Meyer says. "Eventually this will become more and more of a pressing issue."
In the first three months of this year, 635 MW of wind capacity was installed, representing 122% year-on-year growth. By the end of June, new installations had hit 2 GW to take cumulative capacity to just over 8 GW, says Shi. He believes around 22 GW will be installed by end 2010 and 80-100 GW by 2020. Azure's statistics support these projections. The volume of megawatts newly built, under construction or in the pipeline doubled in the first three months of 2008, rising from 65 GW at the end of December to 134 GW.
Most of the new capacity is going up in the northern areas of Inner Mongolia, Jilin, Liaoning and Hebei, which already account for the bulk of installed capacity to date, and coastal areas in the south-east like Jiangsu, Shandong, Guangdong and Zhejiang. Some of it is earmarked for offshore development. Around 35 GW of that pipeline, up from 17 GW at end 2007, is deemed "imminent" by Azure. The 35 GW includes the landmark Gansu development, a project driven by the government's determination to become the leading wind power nation in the world. The northern province of Gansu, with 338 MW of wind capacity installed at the end of 2007, will become China's first so-called "wind power base." By 2011, 10 GW of wind power capacity is to be installed there. More will follow. The first phase of Gansu, just one of several regional bases the government wants developed, got under way earlier this year, with 3.8 GW of capacity awarded to Chinese project developers.
Gansu and beyond
This project, more than anything else, has perhaps defined China's wind market for 2008 and the future. Its sheer size leaves no doubt that the government is backing its good intentions with action. But the tender process for Gansu also reveals China's determination to shut out foreigners where they are not needed, just as it has done in awarding previous concession contracts for large wind farms.
The Gansu tender was the subject of a government special policy order designed specifically to foster domestic wind industry growth. International suppliers were left to watch in envy as the whole lot was awarded exclusively to four domestic turbine suppliers, including the leading three, Goldwind, Sinovel, and Dongfang (page 12). "We are not satisfied with the preferential treatment given to local companies, be it project developers or turbine suppliers," says Paulo Soares of India's Suzlon, with particular reference to Gansu. "This sets a dangerous precedent."
China's overt support of domestic companies is a step beyond the approach seen in the wind industry to date. China, like Spain, Brazil and Quebec, already demands a high percentage of locally made content if wind power stations are to qualify for power purchase contracts. At least 70% of all wind farm equipment must come from local sources. Wind turbine suppliers from abroad have had no choice but to quickly set up shop in China if they are to share in the huge market.
China has also made it difficult for foreign project developers to succeed in the country. With wind power purchase prices allowing for only a marginal profit, developers have to register projects under the Kyoto Protocol's Clean Development Mechanism (CDM) to reap additional income from sale of carbon emission credits. To be eligible for those CDM credits, a company must be majority Chinese owned.
Gansu, it is feared by the international wind power industry, is the turning point where China's government has dropped all pretence of providing anything close to a level playing field. Along with the award of the first 3.8 GW to local companies, the government has this year introduced a number of significant new policy measures that again favour domestic firms, including research and development subsidies and new import duty rules.
Article by Gail Rajgor, Senior Editor
Lin Jianyang, China Features for Windpower Monthly.