New focus on Chinese quality and energy production

CHINA: Last year was the fifth in a row when China's wind power development doubled. This latest installation increase of 13.8GW sees the country lead the world in new installed capacity for the first time and become the second-largest country in terms of cumulative installed capacity, too, surpassing Germany by a slight margin and trailing only the US.

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In the meantime, three Chinese turbine manufactures — Sinovel, Goldwind and Dongfang — joined the list of the world’s largest turbine manufacturers.

Growth Drivers

China’s Wind Base initiative, established in 2008 by the National Energy Administration, continues to be the major driving force for wind development.

This set out that seven wind complexes were to be established each exceeding 10GW — with a total capacity of more than 127GW by 2020.

Although the 2020 updated wind development plan with the Wind Base initiative was never made official by the Chinese government, it is clear that the country will not fall short of 150GW by 2020.

By the end of 2008, the market was overheating with almost 80 turbine manufacturers but less than 30 companies with products actually on the market.

By mid-2009, seeing the waste of resources and capital that this was causing, the central government decided to halt any unnecessary expansion — partially caused by the call of provincial and local governments for turbine manufacturers to set up facilities in their jurisdictions.

With restrained funding and approval for projects, the manufacturing overheat has slowed down, but it is important to note that the central government’s response does not necessarily reflect a shift in overall policies on wind development in China.

Meanwhile, competition between domestic turbine manufacturers and foreign firms operating in China has intensified.

At the end of 2009, the share of foreign firms had declined to only 13% of the total annual market and, in order to survive, many have lowered their prices.

The Chinese government now needs to regulate the market by introducing technical standards and shifting the focus from turbine installation to electricity produced.

In order to create healthy market competition, turbine quality and price need to be equally considered.

With heavy domestic competition, some Chinese companies have started to eye the international market.

At the end of 2009, five Chinese companies, including Sinovel, Goldwind and Shanghai Electric, had exported 28MW of turbines to the US, the UK and Thailand.

Until now, Chinese wind development has been monopolised by state-owned energy companies, mainly the big five — Huaneng Power, Datang International, Huadian Power, Longyuan Power and China Power Investment — as well as the provincial government-owned energy firms.

It is now time for the Chinese market to open its wind development business to foreign companies, where a more open market for developers would lead to better services and pricing, sharing the last 30 years of project development and management experience.  

Ambitious plans

Offshore development has more recently kicked off in China and, after initial struggles with grid connection, the Shanghai Donghai Bridge 100MW offshore project came online in June 2010.

On the policy side, in January 2010, the National Energy Bureau and the State Oceanic Agency announced development guidelines, and that offshore projects will follow a tendering process to select the developer and determine the tariff.

The first round was launched in May, including four projects in Jiangsu province, totalling 1GW, with bidding results due to be announced in September.

In the meantime, 11 coastal provinces and cities are drafting offshore development plans, and five (Jiangsu, Shanghai, Zhejiang, Shandong and Fujian) already have a tentative plan for 20GW of offshore development by 2020.

Domestic turbine manufacturers are as enthusiastic as local governments about offshore wind power development.

The top three Chinese turbine manufacturers — Sinovel, Goldwind and Dongfang — have opened facilities in coastal provinces specifically for offshore turbine manufacturing.

Other companies, such as Shanghai Electric, United Power and China Shipbuilding Industry Corporation, are testing their intertidal offshore turbines, and last year Chinese manufacturer XEMC bought Dutch developer Darwind and its 5MW offshore turbine technology.

The two international offshore giants, Vestas and Siemens, are also poised to jump into China’s offshore business.

Move to quality

China’s wind industry is the world’s fastest-growing market, seen as a wind development success in an emerging market with government policy for renewable energy a major driving force.

Now, however, after years of rapid development, it is time for China to shift its focus from quantity to quality and from installed capacity to electricity generated.

Furthermore, China should work to move beyond fostering only its domestic manufacturing base to allow the world’s leading companies to participate.

Chinese offshore development shows huge promise, and important lessons learned from onshore development can and should be applied.

But China’s first offshore project, Shanghai Donghai Bridge, has been operating for less than a year.

It took Europe more than ten years to begin large-scale offshore development and, before the same happens in China, more experience in management and operation of offshore wind farms needs to be collected.

Furthermore, there are many technical issues that need to be resolved, such as grid integration for offshore wind.

Offshore tendering

Tendering for offshore projects will need much attention in the years to come, too.

The problem of too-low tariffs remain in the onshore process, thanks to the bidding rules, which focus solely on the tariff.

Furthermore, state-owned enterprises focus on winning a bid rather than on project profitability. If the tariff process is not normalised in offshore concession tendering, low tariffs will hamper development.

A feed-in tariff was introduced last year, but pending issues such as timely grid connectivity, grid curtailment and new taxes from local governments still impede profitability of Chinese wind projects.

The industry still relies on support from the UN’s carbon-offset scheme, the Clean Development Mechanism (CDM).

Last year there was shock in the Chinese wind industry when the executive board of the CDM rejected projects because of concerns about government manipulation of the tariff.

While this has triggered industry discontent, as the charges were thought to be unsubstantiated, it is a real problem for the Chinese wind industry, as CDM support remains crucial for wind development in China.

With the CDM setback, projects developed before the introduction of the 2009 feed-in tariff will now find it more difficult to register as CDM projects, especially those from provinces such as Shangdong.

In the future, offshore wind projects may become eligible for CDM support, and the Shanghai Donghai Bridge wind farm has already applied and been registered as a CDM project.

China’s booming wind industry has been the major driver of global growth in the sector in recent years, but all parties agree that the focus needs to shift substantially from quantity to quality if the Chinese industry is going to be truly sustainable for the medium and long term.   

Liming Qiao is policy director of the Global Wind Energy Council

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