China unlikely to 'bounce back' before 2020

CHINA: New research from FTI Intelligence, part of FTI Consulting, has predicted installation levels are unlikely to recover to 2015 level of 30GW before 2020.

High curtailment rates in Xinjiang could lead to a halt in project approvals
High curtailment rates in Xinjiang could lead to a halt in project approvals

In its latest intelligence spark note, FTI said the 30GW peak in 2015 was the result of a surge in installations prior to a fall in feed-in tariff (FIT) rates.

While the annual installation figure is expected to grow in China over the coming years from the less-than-25GW in 2016, FTI predicts it will be 2025 before the 30GW total is reached again.

Also, the addition of a new mechanism in provinces where curtailment rates are high has pushed down installation rates in the world's largest wind market.

According to FTI, quoting China's National Energy Administration (NEA), the country added just 6GW of new wind capacity in the first half of 2017, down 40% on the same period of 2015.

In 2016, 49.7TWh of wind power was lost to curtailment, FTI said. To combat this, the government added a control measure called the risk warning mechanism (RWM).

This mechanism uses a traffic light system (red, orange and green) to rate regions and provinces in China on policy, resource and operation (including curtailment rates) — and economics.

If an area is given a red grade,  project approvals and grid connections are paused until curtailment rates are improved, according to FTI.

FTI said this new mechanism for the lower installation rate in China during the first half of 2017.

"FTI expects that the RWM will continue to constrain wind project development in Xinjiang, Gansu, Jilin, Inner Mongolia, Ningxia and Heilongjiang," FTI said in its note.

These are the areas in northern China where most wind capacity has traditionally been installed in recent years, and which suffer from high curtailment.

As a result of the slowdown, FTI predicts domestic OEMs relying more and more on the overseas wind market.

"As the domestic market is unlikely to bounce back in the short term, Chinese turbine OEMs need to rely on the overseas markets to relieve the pressure caused by overcapacity. This is why the industry has seen a greater effort from leading Chinese turbine manufacturers to look for growth in international markets after 2015," FTI said.

Further down the supply chain, FTI warns of consolidation or withdrawals from the market.

"As some of the tier two and all the tier three players are unable to compete directly with western OEMs in the international market and don't have exposure to the growing offshore wind market, FTI expects some small- and medium-size Chinese OEMs, will withdraw from the market or will have to find a partner in order to survive," the consultancy predicted.

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