Five companies submitted bids to the State Development and Reform Commission (SDRC), China's super ministry in charge of approving all big projects undertaken in the country. Three companies offering the lowest bid prices were successful. China Longyuan Electric Power Group Corporation, the biggest wind player in the country, competed for all three projects and was successful in two. It will build half of the 400 MW Tongyu Wind Farm as well as the 100 MW Rudong Phase-II project in Jiangsu.
Tongyu was originally planned to be just 100 MW, but the size was increased because of the good wind resources and to make the most of investment in a 120 kilometre power line needed to connect the wind farm to the electricity network. Rudong could eventually grow by a further 50 MW, with Longyuan assured the franchised development right if the extension goes ahead.
The remaining 200 MW of the Tongyu project will be developed by China Huaneng Group, one of the country's leading power companies, while Beijing International Power Development and Investment Corporation (BIPDIC) will develop the 100 MW Huitengxile Wind Farm in Inner Mongolia.
In the case of Tongyu, Longyuan and Huaneng were the only bidders, quoting almost equal prices to get power online at around the CNY 0.51/kWh ($0.062/kWh). BIPDIC's bid for the Huitengxile project was lower still. At around just CNY 0.38/kWh ($0.046/kWh) it was the lowest in this year's tendering.
While some wind players have criticised the low bids, the SDRC is reportedly satisfied with the result, regarding it as evidence that the cost of wind energy can be reduced. Low prices are expected to pressure developers into buying domestic turbines, which is exactly what SDRC is aiming for. The commission believes increased local production will result in the successful commercialisation of China's wind sector. It insists that at least 70% of the turbines are built in China.
Some, however, suggest the winning bids are too low to allow developers a reasonable profit. The effect could be very damaging to a market still in its infancy, they warn. By allowing the lowest bids to win, the government is "sending a wrong signal," says Shi Pengfei, professor at the China Hydropower Engineering Consulting Group Company. He notes that compared with last year's tenders, also for 100 MW projects (Windpower Monthly, January 2004), the number of bidders was down. "What if there are no bidders for a project next year?" he asks.
Zhang Jianguo of China Machinery & Equipment International Tendering Company, which conducted the tendering process on behalf of SDRC, disagrees. He expects to see more bids for next year's round of tenders. "Wind power prospects are very bright," he says.
The winning developers are defending their bids. BIPDIC's Zhang Fengyang points out the wind resources and other conditions in Huitengxile are different from those in the two other regions. The project attracted four bidders and their prices were very close. It is the company's first major wind project and it will be a success, Zhang insists.
The Huaneng Group also insists the company's plan for Tongyu is viable and that the region is ripe for significant wind power development. The company's product portfolio is predominantly fossil fuel based at present, but it is nurturing the embryo of what it says will be an ambitious green energy plan.
The wind resource and infrastructure at Rudong is not as good as Tongyu. Huarui, the much criticised champion of last year's bidding, won the Rudong Phase-I project by quoting a price nearly CNY 0.20/kWh lower than the runner-up. It bid for Phase-II this year, but raised its price by some CNY 0.17/kWh, losing out to arch rival Longyuan, with a price almost CNY 0.05/kWh ($0.006/kWh) lower.
Shi suggests that as the developer of the first-phase plant, Huarui's second-phase bid shows its understanding of the real cost of this particular project. "This time Huarui teaches us all a good lesson," Shi says. "While Huarui learned its lesson the hard way, Longyuan, which lost to Huarui in last year's competition, apparently had learned the other lesson."
Longyuan disagrees. Last year the company's losing bid for Rudong Phase-I was around CNY 0.60/kWh ($0.072/kWh), and while some analysts say its CNY 0.51-0.52/kWh bid this year is too low, Longyuan believes it can avoid losses with Rudong Phase-II, though the profit, if any, would be marginal.
What seems to be driving all the low bids is the opportunity to get an early foot in the market and be seen to be green. Others fear that if China goes ahead with a mandate for 5% of power to come from renewables, the cost of buying green power certificates to comply with the quota might be greater than running a wind plant at a deficit.