The existing market is based on a 1999 decree from the State Development Planning Commission and the Ministry of Science and Technology obliging all grid companies to buy power from wind farms at a price which covers the production cost and loan repayments while still leaving a margin for profit. Under this system, securing a power purchase contract is a long winded affair. The removal of specific barriers, such as the halving last year of the 17% value added tax on wind power, has not been enough to galvanise a serious market.
A series of support systems to stimulate a market are being considered, however. A main aim of China's wind power policy is to bring down prices by localising wind turbine production and by applying market mechanisms to wind plant development. Nearly all of the 400 MW in operation comes from Denmark, Germany and the US and nearly all is subsidised through overseas aid programs. The perceived high price of the technology is one of the major barriers to progress, say industry observers.
According to Li Kejun, president of the non-profit China Classification Society, the government has said it will subsidise wind plant operators with a tax rebate until wind power is fully competitive. At the same time, policy experts are proposing a royalty-based market, much like that which has opened up China's offshore oil resources to international oil companies through public bidding.
Meantime, in June last year the State Development Planning Commission announced it was working on legislation to introduce a mandatory market share for renewables facilitated by trade in green power credits to enable renewable energy to be traded across different power grids. To comply with the mandate, power retailers will be obliged to acquire a specified number of green power credits. These will be awarded to the operators of renewable energy facilities, who can sell them to the highest bidder among retailers who do not have their own renewables generation. Income from green credit sales will supplement income from sales of the physical electricity.
Made in China
To kick-start local production of turbines, the State Economic and Trade Commission (SETC) launched a program in January 2001 which uses the proceeds of treasury bonds to subsidise wind plant made with Chinese technology. The result last year was the selection of three projects for subsidy: 10.2 MW at Dalian in Liaoning province; 10 MW at Yinkou, also in Liaoning, and 22.8 MW for the Xinjiang No.1 Wind Power Farm. A fourth project, 30 MW at Chifeng in Inner Mongolia, is being considered.
All will use wind turbines made in China and all will be completed this year or next, says Zhu Junsheng, chairman of the China Association of Renewable Energy Industry. "This is intended to support and accelerate production localisation for wind power equipment in China as well as provide a market for locally made equipment," he says. The Yinkou plant will go out to tender this year.
Two overseas wind turbine manufacturers have already set up local production of 600 kW turbines in China, largely prompted by the Chenfeng Program, introduced by the State Development Planning Commission in 1996. Under the program "the government creates demand and enterprises set up joint ventures to make wind power equipment and engage in competition in an orderly way." To be included in the program, 40% of a wind turbine must have been made locally.
The two companies are Nordex, a company which is publicly traded in Germany, and Made, a subsidiary of Spanish electric utility Endesa. Nordex's joint venture, Xi'an Weide Wind Power Equipment Co Ltd, is with Xi'an Aero Engine Corporation. Made's venture, Yituo-Meide (Luoyang) Wind Power Equipment Co Ltd, is with the China No.1 Tractor Group.
China Classification Society is also working to establish the country's first certification system for wind power generators to ensure they meet power industry technical standards. According to SETC, China is now able to independently develop 90% of 200-300 kW wind power generators and 80% of 600 kW generators. The accessible Chinese wind resource is more than enough to meet the country's entire demand for electricity.