Gamesa ties up its future in China

CHINA: Spanish wind turbine maker Gamesa has signed a long-term agreement with two Chinese state-owned enterprises to consolidate its position in, and expand its share of, the Chinese wind turbine market.

Last month, Gamesa's chairman and CEO, Jorge Calvet, announced the company had signed a strategic agreement with Guangdong Nuclear Wind and Datang Renewable Power, both of which are among the top five energy companies in China.

Under the terms of the CNY 6.6 billion ($983 million) deal, Gamesa will supply 1.3GW of turbines (the G8X-2.0MW and G5X-850kW models) to the two Chinese companies by 2014, which amounts to nearly half of its total installed capacity in China.

Gamesa's deal with Guangdong Nuclear Wind exceeds 1GW and comprises 576MW of generation in Liaoning Province and 450MW in Heilongjiang Province, north-east China. Gamesa will also supply 290MW of generation to Datang in Liaoning Province.

New venture

The deal is not confined to turbine sales, however. Gamesa will team up with the Chinese companies to jointly invest in, develop and construct wind farms, as well as send its staff to construction sites to train Chinese engineers. This relationship is a departure from the usual turbine supplier-developer model and, if successful, could help Gamesa reclaim its position in the market.

According to Zou Hui, a research fellow at financial advisory company Orient Securities: "Gamesa is cooperating with state-owned power companies for two purposes: first, to maintain its position in the Chinese wind power market; second, to lay a solid foundation to win wind farm concessions in the future."

The deal comes at a time when Gamesa is losing market share in China. Last year, it had 4% of the total cumulative Chinese wind turbine market, compared with 33% in 2006. By contrast, Sinovel Wind Group, China's largest wind turbine producer, enjoyed a 23% market share in 2009, up from just 1% in 2006.

Import troubles

This shift in fortunes is linked to a number of measures introduced by the Chinese government designed to boost local wind turbine production. These included the requirement that wind farms should source 70% of materials from the domestic market in order to get permission to go ahead.

The domestic content requirement, introduced in 2005 and abolished four years later, had a dramatic effect on China's wind power market. In 2006, foreign developers made up more than 55% of China's wind turbine installed capacity but, a year later, it was Chinese companies that supplied 55%.

In 2008, Chinese and Sino-foreign joint ventures held 76% of the newly increased market share and 62% of cumulative market share with China's top three wind turbine producers - Sinovel, Goldwind and Dongfang Electric - alone grabbing a 55% market share. By 2009, foreign wind turbine producers made up just 20.9% of the market, compared with 59.7% for the top three Chinese wind-turbine producers.

Paulo Fernando Soares, while he was in the position of Suzlon China's CEO earlier this year, said that the policy had made it impossible for foreign companies to compete with their Chinese counterparts for wind power projects in the country.

Its abolition should make it easier for foreign companies to compete. Shi Lishan, deputy director of the new and renewable energy department at the National Energy Bureau of the PRC, says the abolition of the 70% localisation requirement now puts Chinese and foreign wind turbine producers on an equal footing.

Gamesa is currently investing heavily in China. Last month, it announced it would invest EUR90 million by 2012, double its current total investment in the country. It has also started constructing its sixth manufacturing plant in the country, in Inner Mongolia, for the production of G8X-2MW turbines.

The plant will be operational in 2011 and, together with the other five plants, will increase Gamesa's production capacity in China to 1.5GW a year.

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