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China

Large scale market closer in China

Construction of China's first two 100 MW wind power projects is expected to begin shortly after contracts were awarded to two separate project development companies by the National Development and Reform Commission. At the same time, the commission signalled that a further 2000 MW of projects could soon follow.

Regional authorities are already rallying behind the Chinese government's call for faster development of the national wind energy resource with plans for a series of 100 MW projects. Tenders for the first two projects have been awarded

Construction of China's first two 100 MW wind power projects is expected to begin shortly after contracts were awarded to two separate project development companies by the National Development and Reform Commission (NDRC). At the same time, the commission signalled that a further 2000 MW of projects could soon follow.

Yuedian Group, a wholly-owned power company in Guangdong, and Beijing's Huarui Group, beat rival bidders to win contracts for development and operation of the Huilai Wind Farm in Guangdong, and the Rudong Wind Farm in Jiangsu, respectively. Due online within two years, the 100 MW developments are viewed as pilot projects which, if shown to be financially viable, could lead to further large scale wind projects in the country.

The two companies will operate the wind farms for a period of 25 years. Both have also signed agreements with relevant provincial governments and grid companies for guaranteed power sales. Under the terms of the agreements, the initial 30 MWh of electricity generated from each project will be bought by the grid operator at rates agreed during the tender process -- CNY 0.5013/kWh ($0.06/kWh) in the case of Yuedian and just CNY 0.43 /kWh ($0.05/kWh) for Huarui. Afterwards, power will be bought at average market rates (estimated to be around CNY 0.55-0.60/kWh) with the grid committed to purchasing power from the two projects for the duration of the 25 year contract. At the end of that period, the operators will have the option of renewing their agreements or turning control of their respective facilities over to the local government.

Borderline

The pay rate for power from the Yuedian project should give the company "an economic return roughly on a par with that from its conventional energy investments," says the company. Industry observers in China say the price is too low: "It's likely to bring the investor little profit gains," comments one analyst. In the case of Huarui's even lower bid price, it would be difficult for an investor to make two ends meet, another analyst suggests. "The bid shows how eager the company was to make its way into the wind power sector which has, until recently, been an area of government monopoly," he says.

Huarui is the biggest private investor in energy programs in China and has set itself a target of owning or operating some 10,000 MW by 2006, backed by a CNY 60 billion investment program. To date, however, its wind power investment has involved just two small scale projects -- one in Helanshan, Ningxia, and the other in Kangxi Pasture on the outskirts of Beijing. The $100 million Rudong Wind Farm, which will have an annual output of around 250 million kWh, signals its first serious venture into the sector.

While Huarui will be the lead developer, it has joined forces with two other companies to build the wind farm. The joint venture has financial backing from both Chinese and foreign investors. Rudong will be the first renewable energy project in Jiangsu, where the provincial government has already approved a $600 million second phase for a further 600 MW installed. If phase two proceeds, turbines would be erected along a wetland area stretching about 100 kilometres along China's east coast.

Series of 100 MW

Meanwhile, developers and local authorities across the country are drawing up plans for a further series of 100 MW developments after NDRC signalled its desire in October to speed up wind development in China. By the end of 2002, China's wind power capacity stood at just 470 MW. Projects under development or already approved will take that to over 1000 MW by the end of 2005.

China's most recently revised target is for 4000 MW of wind by 2010 and 20,000 MW by 2020. NDRC proposes to develop 100 MW wind projects in each province. A total of 20 provincial development plans will be selected within two years with the aim being to have two projects developed in each province. A fund worth CNY 20 million ($2.4 million) has been earmarked for the development program, with local governments expected to make up any shortfall. Tenders for the projects are expected to be issued next year.

Among wind turbine suppliers focusing on the Chinese market potential is Germany's Repower Systems, which recently signed two letters of intent in Beijing -- one for the formation of a joint venture with Tianjin Hi-Tech Holding Group and the other with the Tianjin People's Government, which has agreed to sponsor specific wind projects. The first of these will be a development of at least 15 MW planned for early 2005.

The joint venture company will produce, market and install Repower's 1.5 MW MD77 turbines in China. In total, the company hopes to install 200 MW by 2008. Repower will be the majority shareholder, with a 55% stake. "A feasibility study of the program will be conducted by both parties before a report on the findings is filed in March or April," says Liu Li of Tianjin Hi-Tech. She adds that it is too early to elaborate on details for the planned 15 MW wind project.

huge expansion

Repower already has 600 kW and 750 kW turbines operating in China. Goldwind, its Chinese partner in Xinjiang, took about 20% of the total market for wind turbines in 2003. "China is about to embark on a huge expansion of its power-generating facilities, and wind power is going to make a growing contribution to this," says Repower's Professor Fritz Vahrenholt, who stresses that in future the company will be supplying the larger MD77. "Repower is in an excellent position to take part in this growth," he added.

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