China

China

China eases the way for steady progress

Incentives to attract investors, low import duties on wind turbine parts and a willingness to make consumers pay the market price for wind energy are among measures the Chinese government has adopted to help installed wind capacity reach the official goal of 1000 MW this century. With help from foreign aid programmes, 500 MW should be possible by the year 2000.

The year 1997 is certainly going to be the most progressive in the history of wind power development in China. Wind turbines with a total capacity of 110 MW will be installed before the end of the year, pushing the combined installed capacity of the country to 166.5 MW. The year's accomplishment doubles that for the previous two decades.

There is still a long way to go, however, before China can live up to its promise of having installed 1000 MW of wind capacity by the year 2000, a goal first proposed in 1993 and set two years later. Yet with the deadline looming, a key supervisor of nationwide development projects says the goal is within reach. In addition to the existing installed capacity, China expects to get government loans from Germany and Spain to build another 350 MW of wind plant in a couple of years. If this is achieved, at least half of the goal will be met.

"It is possible for China to keep this ambitious pledge, provided investor incentive, state policies and support, and market prospects all work for this goal," says Yin Lian of the New Energy Development Bureau of the State Corporation of Electric Power. SCEP is a ministry-cum-corporation, better known as the Ministry of Electric Power, a result of commercialisation of China's energy industry sector responding to the call of building an economy ruled by market laws rather than bureaucracy.

The investor incentive is evident in a US $30 million contract signed in August between the international development arm of Dutch electrical utility, NUON, and three Chinese partners, namely the China Fuling Wind Power Development Corporation of Beijing, Shantou City Electric Power Bureau and Nan'ao Zhenneng Wind Power Development Corporation from Guangdong Province (Windpower Monthly, September 1997). The investors will build a 24 MW wind plant with 40 Nordtank 600 kW turbines on the island of Nan'ao in Guangdong Province.

According to the contract, the Dutch company will furnish 55% of an initial funding of US $10 million, while its Chinese partners jointly underwrite the remaining 45%. NUON is then responsible for channelling the US $20 million balance from the European financial market. The contract will be good for 25 years. Danish NEG Micon will supply equipment, site construction, installation of turbines and plant operation for five years after its completion in May.

Flexible showcase

"This contract is a showcase for flexible means of venturing in the Chinese market," comments Yin. "Any means is acceptable as long as it helps to build wind plants." Unlike its precedents, under which the range of co-operation was not much broader than importing equipment and some technology, this contract allows diversified means of financing and leaves the right to the plant's operation to a foreign contractor. "I believe all participants will find satisfactory chances of profiting from the project," says Yin.

He looks forward to more contracts to follow. "To fulfil the 1000 MW goal, we need to build a batch of new wind plant projects quickly. The key factor is investment from home and abroad," he says. "Setting up a wind turbine is not intimidating but a snap, if the money is there."

By the end of 1996, China's electric power industry ranked third in the world in installed electrical generating capacity (236,000 MW) and second in output (1750 billion kWh). More than 80% of this amount of power stems from burning fossil fuel. Environmental concern weighs in the country's choice of developing renewable energy, with theoretical potentials of 250,000 MW. The vice minister of electric power says wind power development should be carried out on a large scale. "This is conducive to the sustainable growth of national energy industries," says Wang Shucheng.

Government support has consolidated this environmental awareness, and it is a major reason for the improving fortunes of wind in China during 1997. With CNY 800 million ($100 million) allocated from the state economic and trade commission, wind turbines with capacities totalling 83 MW from Denmark, Germany and the United States have been installed this year in four major wind plants: Dabancheng in Xinjiang Uygur Autonomous Region, Huiteng Xile in Inner Mongolia, Kuocangshan in Zhejiang Province and Zhangjiakou in Hebei Province. All the new turbines, some of which join existing wind farms, will be operating before the year end. The money from the state commission paid for the equipment, technology transfer and the turbine towers, which were built and assembled in China.

The money didn't come easily. "It is the result of our lobbying for nearly seven years," says Yin. "But since it has brought about encouraging and satisfactory results, I believe there will be a second time." Besides winning major financial aid from the central government, SCEP seems to have worked out some fine details more relevant to attracting the interest of commercial investors. These include a tariff for wind generated electricity, reduction of import duty on equipment, and dealing with the thorny problem of value added tax.

RAISING THE PRICE

In China the price of electricity produced by wind is usually twice that of thermal power. The local power grids used to be unwilling to accept the electricity unless it was sold well below production cost. Inner Mongolia, with the nation's highest installed wind turbine capacity, had to pay an annual subsidy of CNY 8 million ($1 million) for its wind power production. Recently, provinces and autonomous regions with wind plants finally agreed to accept wind electricity at its market price. To pay this price, they have raised their charges slightly to end buyers.

As for equipment imports, Yin says that the Chinese customs department provides special treatment to "high and new tech imports" by levying an import tax of only 6%. The first time this rate was applied in China was to the import of the 83 MW of wind turbines which arrived in the country this year. Before that, the rate could be as prohibitive as 40%. Operating wind plant also pay a 17% value added tax, further increasing production costs. "This tax is a must, stipulated by state law that no one can break," Yin says. However, local governments now generally pay an 11% rebate to wind plants, reducing the sales tax to just 6%. Adds Yin, "Here is an example of how local government incentives can work, at their own cost but for long term benefits."

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