China

China

Finance package boosts confidence

China's wind industry has welcomed a CNY 4 trillion ($570 billion) economic stimulus package announced by the government on November 9 in response to the global credit crisis. It includes a promised reform in China's tax regime, incorporating tax cuts, forecast to save around CNY 120 billion ($17.6 billion), as well as an easing of the credit restrictions that led to several projects being delayed in the past year.

Financing for a massive infrastructure plan, which is to be doled out over two years, is also a priority. This encompasses grid expansion projects in rural areas, considered vital for the wind industry, as well as road and rail construction. China's State Council, which announced the package, says it will also support conservation and pollution control projects.

The wind industry says the package will help turbine manufacturers and developers by cutting their tax burdens and easing cash flows, alleviate project delays resulting from lack of grid connection, and generally boost confidence in the sector. Shares in the renewable energy sector in the Chinese capital markets reacted positively to the government's announcement, with Goldwind, the sole wind turbine manufacturer listed on the Chinese stock market, gaining on four consecutive days.

The package signals that "the government has not lost its passion for wind," says Qin Haiyan of the China Wind Energy Association. China's wind turbine manufacturing companies, particularly leading suppliers, will benefit most, he adds. As well as the tax cuts, the government's lowering of the reserve requirement ratio -- the percentage of deposits a bank must hold against its loans -- will prove particularly beneficial, he notes.

Hikes in the reserve requirement ratio in June from 10% to 17.5% had taken around CNY 400 billion ($58.7 billion) out of circulation, leaving some developers without the financing they had banked on to complete projects. As a result, some turbine suppliers have been left waiting to collect on completed orders (Windpower Monthly, China Supplement, November 2008). The November 9 announcement means some of this money will now be freed up, enabling more project completions.

Li Junfeng of the Chinese Renewable Energy Industries Association agrees and adds the focus on building out the grid will help improve project cash flows. While some have voiced caution that the pump-priming may reinforce reliance on traditional energy to a degree, Li says he is confident the spending on infrastructure will benefit wind.

At present, around 2.2 GW of installed wind plant is not operating due to insufficient grid connection capacity (main story). This package, says Li, could significantly reduce that. Energy analyst Julian Wong, a visiting fellow at Tsinghua University in Beijing, warns, however, that much depends on whether any expanded grid network is aimed at taking up power from wind farms rather than coal fired power stations.

"The fact remains that the [Chinese] power structure is so firmly entrenched in coal and as much as the wind industry is growing, a lot of it remains unconnected to the grid," he says.

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