Rapid shift to gigawatt scale deals in China -- European wind project developer inks 10 GW joint venture with Chinese partner

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Fersa Energías Renovables, a mid-size wind project developer and owner listed on the Spanish stock exchange, has made wind energy history with an agreement to develop 10 GW of wind power in China, the largest deal of its kind yet made. The agreement is with Chinese industrial and chemical company Shandong Lubei Corp. All the planned capacity is to go up in Shandong province in east China over the next ten years, including some of it offshore.

Both the Shandong provincial government and China's central government have granted the joint-venture prospecting rights to develop the targeted capacity. Overall investment is estimated at EUR 10 billion, most of which will be sourced locally in accordance with China's strict requirement for 75% local content in all wind development.

A joint venture called Siljn Port, with Fersa owning 80% and local investors the remaining 20%, controls 60% of the project development company, called LUSA. Shandong Lubei Corp owns the remaining 40% of LUSA (the LU comes from Lubei and the SA from Fersa). With that, Fersa claims to be the first foreign outfit in the wind development business with a controlling stake in a Chinese company, though the sum of its direct shares in the 10 GW only comes to just under half the total, at 4.8 GW.

Ready to build

A 50 MW plant under the deal is already fully licensed, with a power purchase agreement (PPA) signed, confirms Fersa CEO José María Roger. LUSA also has land rights and grid connection permits for a further 500 MW, all scheduled for completion by end-2011. Permits for an additional 3500 MW to be built during 2012-2014 are under negotiation. "And we're already moving to develop the rest," says Roger. "It's all government endorsed and backed by a local industrial giant: it's hard to get more solid than that."

Fersa was founded in 2000 as the renewables investment arm of Fibanc, a Catalonia bank. Today 56% of Fersa shares are freely traded. The company owns just over 1000 MW of wind capacity in Europe, either operating, constructing or fully licensed.

The power purchase price for LUSA's first 50 MW plant, stipulated in the PPA signed with both central and provincial governments, amounts to EUR 76/MWh, indexed to inflation, says Roger. The agreement allows the PPA to be extended to all remaining development up to 10 GW by end-2018.

Roger says 10 GW sounds like a lot, but given the size of China and its rapidly growing demand for electricity "the scale might be equivalent to something like a 100 MW plan in Spain." In its latest World Market Update of the global wind energy business, Denmark's BTM Consult is forecasting installation of 36,500 MW of new wind capacity in China in the 2008-2012 period, taking cumulative installed capacity to over 42,000 MW.

Shandong Lubei Corp is a conglomerate of 52 companies and is one of China's top five chemical producers, though it also produces aluminium and generates power. The company holds assets totalling EUR 1.1 billion and employs 7300 people.

First phase

The first 550 MW phase is slated for a 500 square kilometre area of land owned by Lubei. "You have to see it to believe it," says Roger. The nine plants Lubei operates there include ammonium phosphate, cement and sulphuric acid facilities considered among the largest in the world. The list also includes a 120 MW thermoelectric plant. "So we've already got the substations and pylons in place."

The site for the first 550 MW phase runs along the hinterland of Lubei's land, hugging the Shandong coast. "It's very flat and practically at sea level, with a maximum variation of under three metres in the whole area," says Roger. "So we'll be tapping undisturbed winds straight off the sea; effectively an offshore wind plant, onshore." The wind resource is estimated as good enough for a nominal 2900 hours of operation at full load annually, or a capacity factor of 33%. In Europe, 27% is considered good going.

Further ahead

The 3500 MW second phase, outside Lubei's property, will require new power lines and land agreements with neighbours. Up to 6500 MW more will follow to 2018 across other areas of Shandong, including the continental shelf offshore, which Roger says will provide the location for 2000-3000 MW of the planned 10 GW.

He is confident he has the experience to make the plan happen. Back in the early 1990s he headed up the early Spanish business of a leading Danish wind turbine supplier, NEG Micon, which merged with Vestas earlier this decade. Since then he has done little else but develop wind power projects and has experience of a broad range of wind turbine technologies. He has also put industrial plans together for wind development supported by local technology supply in several regions of Spain. It is all about "working closely with and respecting local partners; a key to our relationship with Shandong Lubei," says Roger. "China is wide open to foreign partners, as long as honour and commitment are there."

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