On my first trip to China five years ago, it had less than 500 MW of installed wind power capacity. We visited a small wind farm on Nanao Island, comprising a collection of turbines ranging from under 100 kW to 500 kW in capacity. They looked almost quaint compared with the megawatt scale machines hitting the mainstream in Europe at that time. Large scale development seemed a long way off. Four years later, total installed wind capacity had increased by more than a factor of ten, and by the end of 2008 it will have increased by 20 times in five years. Talk about exceeding even the most wildly optimistic projections.
When GWEC launched a Chinese translation of Wind Force 12 in May 2004, we didn't know what to expect in response. The press conference was held in conjunction with an expert consultation on the new Renewable Energy Law, then at the drafting stage. Much to our surprise, we had a positive response from government officials and the press response was overwhelming. While the support and enthusiasm for wind power was palpable, when it came to our projections, the officials were polite, but in the end totally dismissive. More than 100 GW of installed capacity in China by 2020 at that time seemed an impossible dream. The official government target was 20 GW by 2020.
Faster than high growth
In late 2005, we launched another set of projections resulting from a study done, on our behalf, by experts in China's National Development and Reform Commission. They came up with a target of 40 GW by 2020. That same week, the government increased its 2020 target to 30 GW. We knew 2005 was going to be a good year, but we were not aware it would be the year the market was going to start taking off in earnest, increasing by almost 500 MW in a single year.
Despite a last minute decision by senior government officials to suspend the implementation of the fixed power purchase prices identified in the new Renewable Energy Law, its entry into force at the beginning of 2006 sparked a new round of development. During the course of that year, installed capacity more than doubled, reaching almost 2600 MW. After increasing installed capacity by 65% in 2005 and 106% in 2006, the market recorded more astounding growth in 2007. It chalked up an astonishing 127% increase, reaching almost 6000 MW.
China has not only grown its wind market faster than any other, but also its domestic wind industry. Already by 2007, a group of Chinese wind turbine makers, headed by Goldwind, Sinovel, Dongfang, Windey, and Shanghai Electric, took about 55% of the entire market, with most foreign competitors losing market share as a result. The question now is not if, but when, Chinese manufacturers will become players in the global market. In fact, it is already happening.
From just under 1.5 GW in 2006, manufacturing capacity in China tripled to about 4500 MW in 2007, and it is expected to double again this year. This means that by the end of 2008, China will be host to the largest wind turbine manufacturing industry in the world, attracting massive investment by sub-suppliers, both domestic and international. By the end of 2010, existing plans for plant construction and expansion mean there will be more than 13 GW of annual manufacturing capacity in the country. The question is, how much of this will go to feed the apparently insatiable domestic market and how much will be destined for overseas?
GWEC released its latest set of projections in the margins of Wind Power Shanghai in late 2007, showing a "high growth" scenario which would see the industry reaching just over 13 GW installed capacity by 2010, about 49 GW by 2015, and 122 GW by 2020. Less than a year on, it appears the industry is outstripping that pace yet again. While the government has just raised its 2010 target from 5 GW to 10 GW, it seems clear that milestone will be reached before the end of 2008, implying our 2010 target will be reached by mid 2009. Further, the once apparently impossible dream of over 100 GW by 2020 is getting close to becoming government policy. An August 2007 Renewable Energy Development Plan calls for 3% of total electricity generation to come from non-hydro renewables by 2020. The clear implication is that somewhere in the vicinity of 100 GW installed capacity of wind power would be required.
All is not roses
None of this will come to pass automatically. All is not roses in this booming market. As this Special Report documents, getting wind power onto the electricity network is increasingly difficult in some areas (page 4). Serious problems have also been caused to the big five major Chinese utilities by the government's freeze on electricity prices. Profits are down and some even lost money in the first quarter, primarily because of significantly increased domestic coal prices. While the government revised electricity prices upwards in response to the concerns of the Big Five, with their profit margins under continuing pressure they have little incentive to invest more in wind project development or encourage further grid investment. Meanwhile, the government's effort to combat rapidly rising inflation has had a direct effect on financing wind projects (page 11).
There has been some improvement in prices paid for wind power, with the central government approving what amounts to fixed power purchase prices on a province by province basis. But the pricing system is still far from transparent and new rules with "unwritten" operative clauses threaten to skew the market even further. Another barrier is the restriction on foreign ownership of projects before they can receive approval for carbon market funding. The rule makes it all but impossible for international developers to get profitable projects off the ground without a 51% Chinese partner.
Wind power in China is one of the great success stories of the Kyoto Protocol's Clean Development Mechanism (CDM). Globally, at the end of September there were 235 projects accounting for more than 19 GW lined up to offset emissions in the West, with about 12 GW of those in China. The aggressive posture of the Chinese government to make the CDM work for China includes making sure that without CDM credits, a wind project cannot be profitable. This is exactly what the CDM was intended for: to defray the marginal costs of less carbon intense production.
The complexity of the mechanism's application and reporting requirements, however, as well as the controversial and methodologically difficult "additionality" requirements, have created calls for China to take the next step and consider a crediting mechanism for the electricity sector as a whole. Under such a mechanism, the emissions of the whole electricity sector would be taken into account. A "no lose" target would be established, which the Chinese electricity sector would aim to meet via national policies and measures. Emissions reductions below that would be eligible for carbon credits. This would provide an incentive for all forms of clean electricity production, with the bonus of a built-in incentive for increasing energy efficiency, simplifying the system and creating the opportunity to ramp up the scale of investment substantially.
Stepping out on climate change
China has in fact stepped out internationally on climate change and has taken some serious domestic measures to back this up. Beyond a target for 10% of primary energy from renewables by 2010, increasing to 15% by 2020, it intends to increase the energy efficiency of the economy by 20% during 2006-2010. As part of this effort, 13 GW of old, inefficient coal fired power plant will be shut down during 2008 alone, with a total of 50 GW of old plant to come offline during the five year period. China now has the most rigorous automobile fuel efficiency standards in the world and some very progressive energy efficiency legislation on the books, although enforcement seems to be a problem in some areas.
China has passed the United States as the largest emitter of CO2 and is under increasing pressure internationally on this front. Its package of domestic policy measures, however, combined with enhanced carbon market mechanisms under a post-2012 UN climate agreement, make China look pretty good when stacked up against other major emitters. It is not yet enough, or course, and a step change in global efforts in this area is required. China seems prepared to do its part. That can only be good news for the wind industry.