Chinese rush on shaky foundations

Among the major challenges as China's wind market continues to grow will be maintaining product quality and efficient business practices so that full benefits to the environment and economy are achieved, according to senior managers from GE Energy. Speaking at Wind Power Asia 2007 in Beijing, they advocated action by the Chinese government to encourage more focus on long term wind station cost efficiencies and less on driving down the initial capital cost.

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As the Chinese government continues to implement key parts of its renewable energy law -- and companies continue to announce scores of new projects -- calls have again been made for quality to take precedence over price cutting to ensure a robust and long term market

Among the major challenges as China's wind market continues to grow will be maintaining product quality and efficient business practices so that full benefits to the environment and economy are achieved, according to senior managers from GE Energy. Speaking at a round table session at Wind Power Asia 2007 in Beijing, they advocated action by the Chinese government to encourage more focus on long term wind station cost efficiencies and less on driving down the initial capital cost. "A structure that rewards good sites and good reliable equipment appropriately is key for pushing the industry," said the company's Vic Abate.

He commends China for its encouragement of local manufacturing -- effected by a mandatory 70% local content requirement for all wind plant -- but warns that unless a long term view is taken in regard to performance of technology, China's market risks achieving less carbon emission reductions than it hopes for and plant owners will face higher overall costs during the plant's operational lifespan.

"Companies like GE have invested hundreds of millions of dollars in advancing technology and often times it may mean the capital cost of the turbine goes up," he said. But over 20 years of operation, that is actually more efficient and beneficial for the owner. "We're going to deliver the most reliable, most efficient wind turbines in the world to China. Our products may be more expensive, but on the life cycle basis, we believe it would lower cost."

Indeed, the company says the 67 turbines manufactured at its Shanyang factory in Jilin province and now operating at the 100 MW Rudong wind farm, the first put out to tender under the central government's program of concession contracts for construction of large wind stations, have been running at 98.6% availability since commissioning, according to the plant developer, China Longyuan Electric Power Group (CLYPG). It is among China's major state-owned utility companies and leading wind plant operators.

GE has recently shipped a further 33, 1.5 MW machines from Jilin to CLYPG to bring Rudong up to 150 MW in total. Turbines coming out of the Shenyang facility consist of 90% locally made content. It shipped 100, 1.5 MW turbines last year, although the company hopes that will eventually increase substantially. "One of the challenges is building the supply chain. So the size of our facility right now is limited," Abate said. "We will not trade quality for output."

GE's comments on the Chinese market -- which have been echoed by many of the global wind industry's key players -- are also supported in a report by law firm Baker & McKenzie in association with the Renewable Energy Generators of Australia, the Chinese Renewable Energy Industry Association and the Centre for Renewable Energy Development. Until now, in China "gaming of the tendering process through the submission of artificially low bids has been common, leading to extremely low prices," the report notes. These prices have on average come in at around EUR 0.038/kWh, less than half the rate being paid on most European markets.

"Low or non-existent projected returns have consequently led to a low contract implementation rate, hampering industry development and reducing economic development through taxation revenue. Where projects have been implemented, low prices have led to the use of low quality equipment during construction, which increases operational risks," states the report.

Quality pressure

The problem has been understood at some levels in China. A document titled the "RELaw Assist Renewable Energy Law in China -- Issues Paper," says China's "competitive tendering schemes should be combined with robust technical standards and a floor price to prevent gaming, low contract implementation rates and poor quality projects." It adds: "This could be coupled with a mechanism to hold bidders accountable for the implementation of projects." Another idea it suggests is to require independent verification of estimates and designs, thus putting "commercial pressure on companies to deliver high quality products."

The report also recommends much greater investment in increasing the capacity of the electricity network to absorb growing volumes of wind power. "Large scale efficient transmission networks need to be designed and implemented to deliver energy from renewable sources around China and allow the grid to support large scale renewable energy projects."

The market would further be boosted, it says, if government implemented utility level mandatory renewable energy targets, potentially by providing for a tradable renewable energy certificate scheme to minimise the economic impact on the power sector. This would provide "a further incentive to invest in renewable projects, since a certain level of market demand would be guaranteed." It also calls on government to reconsider introducing fixed prices in standard offer contracts for wind power. Furthermore, a system of penalties should exist to make sure targets and prices are complied with.

American entry

Despite the policy concerns, new projects and development plans continue to be announced on an almost daily basis, with the wind industry's global giants having no doubt about China's vast potential. America's AES Corporation is the latest to hit the ground running in the land of the dragon. In joining forces with Guohua Energy Investment -- one of China's leading renewable energy power producers -- AES is set to become the first US power company with wind generation facilities in China, it says. The companies are kicking off their partnership with a 49.5 MW wind plant, currently in the initial design phase. It will be located in the Huanghua area of Hebei Province, approximately 200 kilometres southeast of Beijing.

AES, which has power operations in 28 countries on five continents, expects further plant to follow, noting the Huanghua site has scope for up to 225 MW of wind capacity. Moreover, the American firm -- which already has more than 1000 MW of wind projects in operation in the US and another 3000 MW in various stages of development throughout the world, primarily in Europe -- is also eyeing potential wind development opportunities in other Asian countries and in Latin America, regions where it has an existing presence via its other power industry activities.

Its chosen partner in China, Guohua Energy Investment, is a state owned enterprise. It has hundreds of megawatts of wind capacity under construction or in the pipeline. These include the 200 MW Dongtai wind farm in east China's Jiangsu province, a central government tendered concession project awarded in 2005 (Windpower Monthly December 2005), as well as a series of projects, all just below the 50 MW mark, being developed in partnership with Australia's Roaring 40s.

"Through our joint venture with Guohua, AES is able to enter the promising wind market in China with a well-established and respected partner and to create a platform for further wind activities in the future," says Ned Hall of AES Renewable Generation. As required under Chinese law, Guohua will hold a majority share (51%) in the joint venture, Guohua AES (Huanghua) Wind Power Company, while an AES subsidiary, AES Black Sea Holdings BV, will own the rest. The 49.5 MW Huanghua wind farm is expected to be in commercial operation in 2009.

Meanwhile, GE's satisfied customer CLYPG is rapidly pursuing its ambitious development plans. In part these are being financed by the sale of the carbon emission credits associated with its wind projects in deals agreed under the terms of the Kyoto climate change protocol. It has reported the signing of a major carbon credit agreement with French national utility Electricité de France for 18 wind projects with a combined capacity of 945 MW.

CLYPG is far from wedded to GE for turbine supply. It has placed two more orders with Denmark's Vestas, each for 25, 2 MW machines, which will be made by Vestas' Tianjin factory. They are headed for Chifeng in Inner Mongolia. Delivery will begin in the first half of 2008, with project completion expected by the end of the year. In addition, last month Longyuan was given the go ahead by China's ministry of commerce for a 100.5 MW wind project in Qidong, Jiangsu Province, while construction on its 200 MW Baotou wind farm in Inner Mongolia has just got underway, with completion scheduled for 2010. Work has also started on the first phase of what will eventually be a 1600 MW development in Weichang, Hebei province, says the Hebei development and reform commission. Longyuan is developing the project in partnership with the Weichang government and the Hebei Construction & Investment Co.

More comes to light

Other recently revealed wind projects on the go in China include a 120 MW development in Xuwen County, Guangdong Province. To be split into a multi-project portfolio, it is being developed by local firm Guangdong Yueneng (Group), which has won a power purchase contract from the local government. Construction is expected to start later this year with a view to completion within three years. According to local Chinese media, the company is in talks with firms from Japan, Australia and Hong Kong about equipment supply for the project. The development will contribute to meeting Guangdong provincial government's target for at least 700 MW of wind capacity to be installed in the region by the end of 2010.

Similarly, authorities in Hainan province, south China, are reported to have announced plans for four to six wind plants totalling 250-300 MW to be built by 2010, while the local governments of Yumen and Guazhou in Gansu province have each awarded 50 MW project contracts to Gansu Jieyuan Wind Power.

Plans by Roaring 40s, a joint venture between Australia's Hydro Tasmani and Hong Kong's China Light and Power, to develop 1000 MW in Xiangyang in partnership with China Datang Corporation are also progressing. The company confirms that feasibility studies for the project are due to be completed in December and that while board approval will then be required, construction on the 400 MW first phase of the project is expected to start early next year.

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