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Signs of Chinese market saturation - Market zeal but note of caution

The Chinese wind power sector has continued to expand its global profile as the supply chain matures, attracting ever greater interest from overseas suppliers and consultants. But industry leaders warn of an imminent shakeout among manufacturers.

There are some places where it is hard to tell the global financial crisis ever happened at all. At the annual Wind Power Asia 2009 conference in Beijing's China International Exhibition Center the number of manufacturers displaying their wares was 445, an increase over last year by half. About 270 of those came from abroad, far more than last year. Meantime, attendance rose nearly 40% to over 15,000. It was all systems go.

Leading Chinese wind turbine manufacturer Sinovel and runner-up Goldwind were notably absent from the 8-10 July exhibition. Both typically focus their efforts on their efforts on the China Wind Power conference, this year planned for October 21-23, also in Beijing. That left room for rising star Dongfang Electric Corporation (DEC), whose wind turbine shipments rose five-fold last year catapulting it to a close third place, to further raise its profile. DEC for the first time displayed its line-up of turbines and though it used only posters this nonetheless drew a long line of spectators. "Our objective is to be a pacemaker and long-distance runner in China's new energy sector," proclaimed DEC president Wen Shugang. The company is developing 2.5 MW and 3 MW wind turbines scheduled for sale next year.

The event - spread across nearly 25,000 square metres, some 40% more than last year - provided evidence that the Chinese wind turbine supply chain is maturing. "WPA 2009 shows China's segmented wind power markets are extending along the upstream and downstream lines," said Ronger Lee, sales director of Shanghai Kankun Trading Co. "It is more than a simple gathering of wind power equipment." That view was echoed by Zhang Xiangmu of the Ministry of Industry and Information Technology, who said China has achieved robust production capacity for turbine blades, generators and bearings. He noted, though, that key technologies are still largely imported.

The event was not without an undercurrent of caution, partly caused by the sheer number of manufacturers mushrooming across the Chinese wind sector. Turbine suppliers eager to tap generous government subsidies have swelled from six in 2004 to more than 70, resulting in a crowded playing field. "Industrial restructuring has started in the wind power sector," said Zhu Shiming, a senior engineer at the China Electrical Equipment Industrial Association. "It will run its course in the next five years." He added: "The present wind power equipment manufacturing sector looks similar to refrigerator production in the country a decade ago. Each province has a plant or plants to produce wind turbines and equipment. But none of these plants have independent technologies. They do not have core competitiveness. As a result, industrial restructuring is inevitable."

Zhang agreed that the pace of growth in China's wind sector entails risk. Among the swath of new factories, he said, only 20 can market viable products while others are either still under construction or churn out only trial products.

Caution

Zhang estimated that by 2010, existing turbine manufacturers will possess combined annual production capacity of 35-40 GW - far in excess of the average 10-15 GW of installed wind power capacity expected annually over the coming decade. A cruel buyer's market, he concluded, will be inevitable.

Greater emphasis on quality will be key to surviving the tougher environment, said Wu Gang, chairman of Goldwind. Though Goldwind did not take part in the exhibit, Wu did join panel discussions where he plugged the company's direct-drive permanent magnetic turbines. Lacking the gearboxes used by most conventional wind turbines to step up the speed of the rotor to that of the generator input shaft, direct-drive machines enjoy low failure and high efficiency. Goldwind is the sole Chinese wind turbine supplier with a patent for 2.5 MW direct-drive permanent magnetic turbines.

"We must pay higher attention to risk control in the course of fast development. Otherwise, we might hurt investors," said Wu. "Many problems in the Chinese wind power sector will show up in the next three to five years as turbines are newly installed in wind farms" - a process that will separate the strong from the weak.

"These days, wind farms pay more attention to turbine price," he added. "They surely see, in overall service life, maintenance costs account for forty percent to seventy percent of turbine expenses. This is determined by the quality of turbines and quality of maintenance. We have studied what turbines and technologies will provide higher added value to end users and we find that they are direct-drive turbines." By end-2008, Goldwind was able to produce a combined one thousand units of megawatt-scale permanent magnet, direct-drive turbines a year at factories in Beijing, Xinjiang and Inner Mongolia. More factories are on the way.

Sinovel, which leapfrogged Goldwind to first place last year, is not standing idly by. Yan Lingyu, general manager of Sinovel parent DHI.DCW Group, said Sinovel is also developing direct-drive turbines while DEC's Wen also said the company is developing 1 MW and 1.5 MW models. Some participants raised issues of quality not related to Chinese manufacturing. Cui Yibin of US grid technology firm Emerson Network Power said that because of differences between electricity grid systems in China and Europe, many wind turbines adhering to international standards will nonetheless encounter problems in China. The company last year watched sales of converters at Chinese wind farms rise about fivefold.

In a keynote speech at the panel discussion, Klaus Mueschen from Germany's Federal Environment Agency shared his experiences of introducing renewable energy sources, while Zheng Kangbing, an energy economist with the Asian Development Bank, signalled more support for Chinese wind. "We may assist the Chinese government in establishing industrial norms and to promote pilot projects. We may supply technical aid," he said. "And we may supply financial support.' Organised by German trade fair company Koelnmesse Co, the China Machinery Enterprise Management Association and Unique International Exhibition, WPA is next scheduled for 23-25 June, 2010, at the China National Convention Center in Beijing.

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