New policy raises purchase prices -- Chinese firms win 950 MW

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China's government has awarded concessions for construction of four wind farms with a combined capacity of 950 MW in its latest round of public tenders for utility-scale wind developments. All the concessions went to large state-owned enterprises intending to use Chinese made turbines, as in previous tenders in recent years. Only a few foreign firms tendered bids for the power purchase contracts on offer and all of them did so as part of a joint venture led by local firms.

The concession winners chose to use turbines from China's top three manufacturers. Goldwind is to supply 300 MW, Dongfang 200 MW and Sinovel clinched two projects with a combined capacity of 450 MW.

Significantly, new tender rules dictated that the winners would be those offering electricity at prices in the mid-range of all bids submitted. As a result, the ultra low winning prices resulting from past tenders, which led to projects being left on the drawing board or running at a loss, were not a feature of the most recent tender. The winning bid prices ranged from CNY 0.468/kWh ($0.068/kWh) to CNY 0.551/kWh ($0.08/kWh) for 25-year power purchase contracts, significantly up on those under the previous four rounds of concessions. These ranged from CNY 0.42/kWh ($0.06/kWh) to CNY 0.50/kWh ($0.072/kWh) (Windpower Monthly, November 2006).

"The winning prices are still low, but they are moving towards the reasonable level," says China Wind Energy Association's Shi Pengfei. "The new tendering method helped avoid any harmful price wars," agrees Qi Guangsheng of the wind power equipment division of the Chinese Society for Agricultural Machinery. "Although the winning prices are still not the most reasonable, they are relatively higher than the prices from the preceding rounds of tendering."

The result should encourage greater confidence in China's wind market. "Redefining the role the price may play has led the game to a positive end," says one market analyst. "It was the middle-price-win rule that has brought about the relatively reasonable winning prices." It gives the concession project developers more confidence in generating a profit and the winning prices will serve as better benchmarks for the National Development & Reform Commission (NDRC) to approve other wind projects, he adds.

Of the four winning bidders, Beijing Jingneng International Energy Company Limited is getting the lowest rate. It bid CNY 0.468/kWh ($0.068/kWh) to beat 14 other contenders and secure the concession for the 300 MW Wulanyiligeng wind farm near the town of Bayanzhuo'er, Inner Mongolia. Goldwind is supplying 200, 1.5 MW units for the CNY 2.714 billion ($393.7 million) project.

A joint bid by China Energy Conservation Investment Corporation and Hong Kong Construction Limited beat 13 others to win the concession for the 200 MW Changma wind farm in Gansu, which will use 1.5 MW turbines supplied by Dongfang. The rate being paid for the electricity is CNY 0.5206/kWh ($0.075/kWh).

The two other projects, both expected to use Sinovel 1.5 MW units, are the 300 MW Beiqinghe wind farm in Inner Mongolia and the 150 MW Yudaokou project in Hebei. A joint venture between Huadian Power International Corporation and China Huadian Company won the tender for Beiqinghe, offering a price of CNY 0.5216/kWh ($0.075/kWh) to beat ten other bidders. Hebei Construction New Energy Limited also beat ten rival bids to secure the concession for Yudaokou. Its winning bid price of CNY 0.5510/kWh ($0.08/kWh) is the highest of the four winners.

China's government has now awarded concession contracts for 17 large wind farms with a combined capacity of 3150 MW. Some developers selected in the first four concession rounds have reportedly complained that they cannot construct wind farms at the contracted price. They have requested that their bid prices, be raised to the new rates. NDRC has rejected their demands. "It is not unfair to these companies because these bidders had competed to get into the business or for other considerations," says an industry observer. "The low rates helped them attain the goals. If there is the danger of loss suffering, the companies must swallow the sour fruit on their own."

China's official wind target is for 10,000 MW of installed capacity by 2010 and 30,000 MW by 2020. By the end of 2007 it had just under 6000 MW already installed, with forecasts suggesting the 10,000 MW target will be met this year.

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