Wind turbines have been selling for less than CNY 3.5 million ($550,000) per megawatt in the Chinese market, plunging by nearly 50% from CNY 6.5 million in 2008. Sinovel, Goldwind and XEMC have all reported disappointing profits this year.
It could get worse. By the end of 2010 total production capacity was around 40GW. But under the national development plan, designed to decrease the imbalance between installed and grid-connected turbines, China will only build 15-20GW of wind farms annually. In an effort to solve a major connection backlog and turbine-quality issues, the National Energy Bureau has become more prudent in approving new wind projects.
Henning Kruse, governmental affairs director for Siemens Wind Power, said that - in the face of the surplus production capacity and excessive market competition - wind turbine manufacturers need to maintain quality and learn to say no when the profit margins are too low. "We cannot sacrifice profits for market share," he told delegates at the China Wind Power conference in October.
Many Chinese manufacturers are following the worldwide trend to develop large-capacity turbines in the 3-6MW range. But some Chinese developers are concerned about the smaller products that make up the bulk of orders and are demanding longer warranty contracts.
Warranty periods for wind turbines have been extended from the previous two years to three years, five years, and over ten years. Some turbine makers have even offered a 20-year warranty period to gain market share. However, as the theoretical lifespan of a wind turbine is 20-25 years there is a danger of extending warranties beyond what could be regarded as feasible.
"Now, some wind farms demand a 20-year warranty period for major components - if this continues, big companies signing 1,000-2,000 turbine contracts have gone bankrupt in theory," said Long Xin, deputy general manager of XEM.
"The problem is that turbine and component makers make less than 10% profit. (But) under the payment contract, wind farms will hold back 10% of the payment for goods until the warranty period expires," he explained.
Unlevel playing field
Another new trend is for leading state-owned power companies to focus on project development and turbine manufacturing.
In July, Datang Group, one of the top-five state-owned power companies, purchased a 70% stake in turbine maker Huachuang Wind Power.
China Guodian Corporation, another top-five state-owned power company, has become a big player in wind-power development and manufacturing through its subsidiaries, developer Longyuan Power and Guodian United Power, which has become one of the top five Chinese turbine makers three years after its launch.
Industry officials worry these state-owned power giants could monopolise the supply chain, acting as both wind-farm developers and turbine makers. Statistics tend to back this up. Around 60-70% of Guodian United Power turbines are sold to Guodian Power and Longyuan Power.
Cause for optimism
Despite the concerns, Chinese industry insiders are generally optimistic about the state of the domestic wind industry. Klaus Aaen, general manager of GE Wind China, said: "GE believes China is a promising market. We are confident to find new opportunities here to realise our growth."
He believed there was room to improve certain aspects of the Chinese wind power market, such as poor grid access, which might slow down the development rate for the time being.
"But I do not think the Chinese wind power market will shrink in the future," Aaen added. "It is possible the development rate will drop to a steady level. The market will be stabilised. This is not bad news for enterprises."
Shi Pengfei, vice-president of China Wind Energy Association, said the slowdown does not necessarily mean China will change its overall wind-power objectives. His position was backed up earlier this year when the government said it planned to have 1,000GW installed wind capacity by 2050, making up 17% of the country's electricity consumption and costing $1.8 trillion.