With $221 billion of China's $586 billion stimulus package focused on the green sector - which includes wind development, grid infrastructure and, most importantly, turbine manufacturing - this year will be the start of exponential growth that will make the previous four years look minuscule by comparison. At year-end, there will be virtually 11 GW of new land-based wind installed in China, according to forecasts. Construction has also started on China's first 100 MW offshore project, the Shanghai Donghai Bridge offshore wind farm being developed by Sinovel (see page 16). Using Sinovel's 3 MW turbines, it is due to be operational in May.
Significantly, the SL3000-series wind turbine was researched and developed independently by Sinovel, retaining full intellectual property rights. Sinovel is now the largest domestic turbine company in China, representing 23% of all turbines installed last year, and is forecast to reach 30% by the end of this year. It envisions becoming the world's largest wind turbine company within five years, generating 30-40% of all international sales revenue. This reality will be funded domestically, driven by state stimulus and state-owned banks in China, which are mandated to support the wind sector with lower coupon non-recourse debt for projects and subsidies for domestic turbine manufactures.
In the last four years, domestic wind turbine manufacturers have increased from what began as a handful of four key manufacturers to over 80 at last count. Beyond 2009, the forecast in China is for more than 12-15 GW a year being installed through to 2020 and 80% of that supply will come from domestic wind turbine manufacturers, further eroding the international turbine market share in China.
The impact on global markets
The likely result is consolidation in the turbine manufacturing market - some mid-size participants without large state-owned enterprise (SOE) partners will not be able to maintain market position, except to a very local and provincially supplied market. Concerns over warranty issues will drive business to the bigger domestic players as developers worry about manufacturers without SOE backing. Moreover, the National Development and Reform Commission will push the available stimulus capital to the large SOE manufacturers, giving them sufficient capital to consolidate, develop and acquire next-stage technology for onshore and offshore technology for export. Expect the as yet unreported CNY 8 billion ($1.17 billion) given to three large SOEs to enter the turbine manufacturing market, or XEMC's report of its takeover of the Darwind 5 MW direct-drive technology (Windpower Monthly, October 2009), to be just the start of numerous announcements, as China races on with next-generation onshore and offshore technology.
At present, domestically manufactured turbines are 20-25% less expensive than their international counterparts. With capacity for 750 GW offshore and 250 GW onshore, we will see an accelerated campaign for offshore development of 2-3 GW a year through 2010-2012. Thereafter, expectations go beyond 5 GW a year, making China the world's largest offshore developer, with unsurpassable cost-efficient turbines for export by 2015. There will be decreased competition from the international turbine manufacturers that rely on more traditional sources of finance to grow in an already strained equity and credit market. With projects in limbo waiting to be financed, global sales of international turbines will decrease, as will the ability of international manufactures to maintain margins.
China, on the other hand, is state growth driven. The $586 billion stimulus came from China state reserves, so there is no burden on future generations to repay it. And the government mandates and supports the state-owned banks to lend, the state-owned utilities to build and the state-owned grid companies to connect. It subsidises domestic turbine purchases and this fuels expanded growth and scale of manufacturing, allowing its companies to compete globally. Therefore, this is the beginning of more cost-effective turbines for global consumption. Good news for project returns for global developers, but tough days ahead for international manufacturers striving to compete.
The giant is awake. He is breathing coal at the rate of 1 GW every five days. To offset this, China will develop wind farms and continue to finance turbine and component manufacturing for export on a cost-effective economic basis that will allow the rest of the world to develop on an accelerated basis. A new era is beginning.
By invitation Gerald Page Managing Director Equinox Energy Partners.
About the Author: Gerald Page is managing director of Equinox Energy Partners, an international renewable energy advisory firm based in Beijing, and a regular speaker at international renewable energy and climate conferences