China - Industry looks to policy support in slump period

CHINA: The Chinese wind power industry experienced unprecedented challenges in 2012, as developers faced a slowdown of new installations and long-standing grid-access bottlenecks, while turbine makers achieved poor results.

Wind capacity… Depressed in China (photo:landrovermena)
Wind capacity… Depressed in China (photo:landrovermena)

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Considering the domestic and international environments, the industry will barely recover in 2013, despite government and industrial efforts, according to Qin Haiyan, secretary general of the Chinese Wind Energy Association.

Influenced by the overall economic situation, the Chinese wind power industry will continue to suffer from curtailment and financial pressure this year, Qin predicted. "But we must see that the problems confronting the industry are inevitable tests in the course of development," he says. "The Chinese government has shown great resolution and support to boost wind power as a strategically emerging industry."

Liu Tienan, head of the National Energy Bureau (NEB), predicts 18GW of new installations in 2013. In December, NEB approved 112 wind projects, totalling 5.21GW, as supplements to the second batch of wind projects for the 12th five-year plan period (2011-2015). It also approved four new wind projects, totalling 6.8GW.

Qin says China would establish more policies in support of wind power development and solve existing problems in 2013. To address the grid access problem, NEB has released plans to speed up development of wind farms in low wind speed and high-altitude areas, as well as develop offshore wind power - all these projects are nearer power users. These will supplement the existing mode of exploring new large-scale wind farms in wind-rich northern areas.

China will improve laws, regulations and supporting policies to ensure full amount purchase of electric power generated in wind farms this year, says Liu Qi, deputy head of NEB.

Industry officials estimate that the Chinese wind power industry will fully recover in the 13th five-year plan period (2016-2020). The present sluggish period is ideal for industrial transformation and upgrading, officials think.

Xiao Han, a researcher at China Investment Consulting, says: "The most effective and direct measure to solve Chinese wind industry problems, particularly the surplus production capacity, is through mergers and acquisitions. Many small and medium-sized companies will be eliminated in the process."

Slower growthchina capacity pie

In 2012, China installed 12.84GW of new capacity, raising the cumulative grid-connected total to 57.9GW, according to China's State Electricity Regulatory Commission. This total reflects the best available Chinese data on grid-connected, online wind-power capacity. The wind turbines generated 100.4 billion kilowatt hours of electricity, an increase of 35.5% on the previous year. However, growth was still below the levels seen in 2010 and 2011, when 14GW and 16GW were added respectively.

The drop in new installations in 2012 was caused by central government approving fewer wind farms and adopting a stringent monetary policy, Qin says. As a result, developers received smaller loans as banks lowered credit limits for wind power projects.

Meanwhile, state-owned power companies, the main forces of wind-power development, suffered heavy losses from thermal power projects in 2012 and were left with limited funds to pour into wind farm construction.

Curtailment of wind-farm power generation also discouraged developers last year, Qin says. Chinese wind farms lost CNY 10 billion ($1.6 billion) from curtailment in 2012, which adds up to 20 billion kilowatt hours of electricity that could otherwise have been generated - double the loss of 2011.

Tighter standards for wind turbines are also acting as deterrent for further wind development. Although most Chinese turbine makers have upgraded their turbines with low-voltage ride-through (LVRT) capacity following three large-scale grid disconnection accidents in 2011 that crippled thousands of turbines because they lacked LVRT, China has insufficient institutions to examine the turbines, which is required before they can be connected to the grid.

Manufacturers feel the squeeze

The situation has created a vicious cycle. With declining profits and tightened monetary policy, wind-farm developers postponed payments to turbine makers.

For example, in the third quarter of 2012, China's top turbine manufacturer, Goldwind, was waiting for CNY 11.18 billion ($1.78 billion) to be paid by wind-farm developers, accounting for 35% of the company's gross assets. As a result, the manufacturer postponed paying CNY 6.18 billion ($980 million) to component suppliers.

With fewer orders, turbine makers made very little profit. In the third quarter of 2012, Goldwind recorded losses of CNY 32 million ($5.09 million) on revenues of CNY 2.46 billion ($391 million), while manufacturer Sinovel lost CNY 280 million ($44.5 million) with revenues of CNY 548 million ($87 million). Ming Yang managed a CNY 5 million ($795,000) net profit, but this was still down 94.4%, accompanied by a 58.6% year on year fall in revenues to CNY 787 million ($125 million).

As a solution, manufacturers reduced production and laid off staff. By mid-December, Sinovel had put more than 500 employees on "paid vacation", widely believed to be layoffs in disguise. Sany Electric stopped production at its base in Zhangjiakou, northern China, cutting the workforce by half.

Foreign manufacturers also suffered. Turbine prices, lowered to less than CNY 4,000/kW ($636/kW), forced firms to retreat from China. In the first quarter, Spanish turbine manufacturer Gamesa, with six plants in China, saw sales down 50%. Danish manufacturer Vestas terminated production at its factory in Hohhot, Inner Mongolia, making 300-350 employees redundant. Indian manufacturer Suzlon is said to plan to sell its Chinese production facilities.

Chinese wind power companies also faced problems overseas. The US Department of Commerce ruled in December that Chinese companies had dumped utility-scale wind towers on the US market while enjoying subsidies and decided to levy 45%-71% taxes. The Chinese wind industry is concerned that the EU market will follow suit.

To survive, Chinese turbine manufacturers joined forces with wind-farm developers by holding stakes in each other to secure turbine sales. To date, Goldwind has teamed up with Three Gorges New Energy; United Power with Longyuan Power; and Ming Yang with Huadian Renewables.

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