Conference Report China: World asks China to drop its barriers

The flood of visitors to China Wind Power 2009 was testimony to the excitement surrounding China's dynamic market, but the challenges to sustainable growth are many - with issues of quality, market transparency, open access to foreigners and grid expansion dominating the agenda.

All wind turbine parts can now be made in China (pic: Jens-Kristian Soegaard)

The annual winter gusts were expected in Beijing as delegates flooded into the China Wind Power 2009 conference and exhibition. By every measure, attendance at the October 21-23 event was heartwarming. About 2400 conference delegates visited from around the world and some 26,000 visitors viewed the exhibits on display from 406 companies - almost 30% of those being firms from outside China.

An air of celebration spread across the 28,000 square metres of the China International Exhibition Center's display hall. And no wonder - China is the wind industry's most dynamic market at present, with 4.6 GW of wind capacity added in the first half of the year, making it the world's largest market for new wind installations (Windpower Monthly, September 2009). By 2020, its cumulative wind total will have risen from today's 16.8 GW to 230 GW if the current pace of development continues, said Arthouros Zervos, chairman of the Global Wind Energy Council (GWEC).

The projection puts the official national wind goal for 100 GW by 2020 (expected to be increased to 150 GW soon) in the shade, and it is a forecast that was undisputed by Azure International, a consultancy based in Beijing. Some 210 GW of wind projects are in the pipeline, said the firm's research director, Sebastian Meyer. Around 45 GW of that is classified as near-term, he said, adding: "For about half of that capacity the turbines are already ordered and on backlog." The bulk of the uncompleted orders are held by China's top three domestic turbine suppliers, Sinovel, Goldwind and Dongfang - at the end of September, they accounted for over 60% of the backlog, largely thanks to successful bids to supply China's planned 10 GW wind power bases.

The government's decision to introduce fixed prices for electricity generated from onshore wind farms built after August 1 (Windpower Monthly, September 2009) was one reason for the good cheer amongst delegates. Grouped into four regional categories, prices have been set according to wind resource and project construction conditions, and range from CNY 0.51/kWh ($0.075/kWh) in the windiest parts of the country to CNY 0.61/kWh ($0.089/kWh) in the least windy areas. They are an improvement on the CNY 0.38-0.52/kWh ($0.055-0.076) seen under the state wind project concession programme, which operated from 2003 to 2007. The new rates are a very good thing that will add certainty to the market, said Antonio de Antonio Garcia, country manager of Iberdrola Renovables China.

But while the government is abandoning its centrally controlled bidding system for wind power prices in favour of the fixed-price route, it is still keeping a firm hand when it comes to controlling the industry. Days before the conference, the government announced plans to hold back funding or approval for projects in industries that it considers to have production over-capacity, which include the wind sector. This, it says, will prevent the market overheating and rein in expansion of the domestic wind industry. Developers at the conference suggested that the move was misguided, and that the wind market is not overheating at all. It was China's leading players who led the call for the government to resist the temptation to favour particular projects and suppliers and instead allow market forces to prevail. This will result in the emergence of good quality wind power equipment from commercially efficient suppliers, agreed a panel of five wind farm owners and operators, all of whom were Chinese except Iberdrola's Antonio Garcia.

While he was far from being the only champion of open markets, Antonio Garcia was alone on the panel in saying that the Chinese wind market is big enough for both state-owned and non state-owned companies. Competition between the two is beneficial, he said. An open market will strengthen Chinese companies and prepare them for doing business in foreign markets; it will lead to a more profitable wind energy sector; it will lead to wind stations' actual output getting closer to their nameplate capacity, leading to a better utilisation of natural resources; and a profitable wind energy market will decrease the cost of power generation in China. In sum, it will make wind energy more sustainable and more competitive, he said.

Quality over price

The cheapest wind turbine is not necessarily the best value for money, Antonio Garcia continued. The quality of the unit must be judged over a period of 20 years, he said, pointing out that China has only been making wind turbines commercially for three years. Official certification of Chinese machines, to ensure they match industry standards, is necessary, he added: "Certification is the way to go. The best solution is not the cheapest one, but the one that will optimise your return over 20 years."

From China's largest wind farm owner, state-owned Longyuan Electric Power Group, general manager Zhang Yuan stressed that profitability and quality is just as important to his company as to any other. For this reason, Longyuan centrally monitors wind farm performance and has set up technical training centres for existing and new staff. The company is one of the country's big five electricity generating companies.

In general, the quality of wind turbine equipment being offered by Chinese companies at present is "not to be recommended while Chinese manufacturers frequently fail to deliver according to schedule", said Zhang: "We are seriously affected here." For this reason Longyuan is only using recognised suppliers - specifically, the leading two domestic turbine manufacturers, Goldwind and Sinovel. "We are glad to see our China-made equipment becoming better and better. From a developer's point of view we want continuous good quality and better profits," added Zhang.

Nobody was arguing with him. Zhao Shiming, general manager of Huaneng New Energy Industrial, agreed that reliability is improving among domestic manufacturers, but added: "We have proved the cost effectiveness of imported equipment." Localisation of turbine manufacturing is a major challenge, he acknowledged, but technical breakthroughs are on the way. "The hope is that Vestas will also match the terms and conditions being offered by Chinese companies," Zhao added, referring to the Danish turbine manufacturer.

Asked whether cheap labour in China meant it was cheaper to continuously repair turbines rather than pay a high price for turbines that would not break down, Zhao said that technology transfer from established foreign suppliers will lead to China producing high-quality turbines at low cost. This will bring down the cost of energy through the production of reliable turbines that can run over 20 years without resorting to major expenditure on maintenance. Agreeing with Antonio Garcia, he said that certification of Chinese machines should become a requirement. "The company is on a fast track and will be installing 2 GW a year by the end of next year," said Zhao.

Like Zhao, Fang Zheng, general manager of China Huadian New Energy Development, felt that the quality of domestic products would in time match that of wind turbines from foreign companies. The marginal technical advantage of foreign products does not justify their price premium, he said: "I would choose domestic products. I think we are talking about both issues here: quality turbines and cheaper maintenance."

Taking a more nuanced view, Gui Kai, vice-president of Guohua Energy Investment, said it is necessary to be selective in choice of technology. Different machines are best for different conditions, he said. Sometimes a cheaper machine is best, other times a better machine: "We take a pragmatic approach and choose machines suitable for each site, dependent on what is available and what is suitable. The best approach can be to co-operate with local manufacturers who have relations with the local authorities. The price is only one consideration. We like to co-operate with the leading local manufacturer."

Operations and maintenance, along with project management, generally needs to be improved, Gui continued. Local knowledge of the area and its available labour resources is important. "We improve quality management to achieve standard performance," he said. Guohua conducts company-wide project management and shares the experience of wind farm project managers on availability. "Through operational management and analysis we evaluate the performance of projects across the company and compare the results to improve overall performance," Gui said.

Protectionism attacked

For their part, foreign turbine suppliers - which have seen their market share plummet in recent years - echoed calls on Chinese manufacturers to pursue strict quality standards and said data on Chinese turbine performance should be made more open. "Transparency starts when we will all know the availability rate of installed turbines here in China," said Repower CEO Wolfgang Jussen, referring to the amount of time a wind turbine is available to operate - and not being repaired or maintained. Most global turbine suppliers aim for an availability rate of 98%, with 96% considered a minimum. "I still try hard to figure out the availability rate of these gigantic farms in Inner Mongolia," he said.

Referring to the disproportionate share of domestic firms winning government contracts for wind projects, Vestas senior vice-president Peter Brun said that protecting domestic suppliers during their infancy made sense but that "after the establishment phase, we need a level playing field to play this game internationally". GWEC stepped into the fray by issuing a statement. "Tendering organised by government for development rights or turbine selection needs clearer rules and procedures and a more extensive involvement from stakeholders," it said. Selection criteria, it added, should consider "the lifetime generation cost of a project rather than just the initial capital cost of the equipment".

Paulo Soares, CEO of Suzlon Energy Tianjin, agreed, saying that focusing on turbine price per unit of installed capacity alone is folly. Returns from domestically manufactured wind turbines, even when quoted at a lower price, fall below those from international suppliers, he said. Furthermore, Chinese manufacturers appear less competitive if their turbine prices are adjusted to account for greater downtime, Soares said, adding: "They keep saying cost, cost, cost, cost, but they do not talk about performance, performance, performance, performance."

Junliang Han, president of Chinese manufacturer Sinovel, met the accusations of protectionism with a counterattack. During a manufacturers' panel discussion, the largely Chinese audience applauded when he said: "Our government procurement processes are open. All transactions have been carried out with a spirit of fairness. In the Chinese market, sometimes foreign companies sell us highly expensive products, but when we are able to (manufacture), they complain that our price is too low."

Global ambition

Sinovel used the occasion to promote its Three-Three-Five-One strategy, a plan to enter the top three global ranking of turbine suppliers within three years, and attain the top spot in five. The government's curb on the wind sector did not faze Han. "Two years, five years, ten years from now, we can still sit here happy and joyful," he said. "Wind energy is the long-term strategy of the state." He did add though: "There is huge room for development, policy wise." To help fulfil its strategy, Sinovel has its eyes on the overseas market and is currently drafting a global sales strategy (see story below). It is not the only one and there was a buzz of anticipation that Chinese turbine manufacturers will soon launch a full-scale export offensive. The only question was how soon. While Sinovel hopes to establish US and European sales offices sometime next year, Goldwind president Jian Guo played his cards close to his chest: "As for going global, we planned from a very early stage that we would be strong in China before going abroad." Still, he said the company was negotiating contracts in South Africa and Australia, and that a first batch of turbines had now been shipped to the US. The company, which has also shipped 750 kW turbines to Cuba, had earlier revealed plans to ship three 1.5 MW direct-drive turbines for use at the Uilk wind farm near Pipestone, Minnesota, which is majority owned by Goldwind. The project already has a power purchase agreement (Windpower Monthly, October 2009).

The push abroad has begun on various fronts, but the Chinese government is actively courting business in Africa on behalf of its domestic industry. According to Shi Pengfei, vice-president of the Chinese Wind Energy Association, the government's export-import bank is providing low-interest loans with long pay-back periods to African countries to support overseas sales of Chinese turbines. Early beneficiaries include a wind project near Addis Ababa, Ethiopia, and another in the north-east, said Shi. Loan proceeds will fund not only the purchase of Chinese turbines but also services such as resource assessments by Chinese consulting firms. The money may also back construction of local factories, "for example, to produce blades". The direct recipient of the Chinese government loan is the state-owned electric power company, which is able to ensure modest but steady revenue flow through mandated power-purchase prices. "That makes it simple: government to government," Shi said.

Discussing other markets, Shi said: "As for the US and (other) developed countries, exporters themselves must look for opportunities." Thanks to ready backing from lenders at home and firm policy in support of renewables under President Barack Obama, Chinese manufacturers are confident they will earn profits in the US market, economic doldrums notwithstanding, said Shi. "This year is just the beginning," he added.

Facing competition from Chinese firms in overseas markets, foreign manufacturers played it cool. "I do not think there is any problem in terms of Chinese companies going overseas," said Jens Olsen, CEO of Nordex China. "I am looking forward to that and I think it will be good for the industry to get more competitors on the market. It will also drive everybody to produce a better product." Repower's Jussen was a little more apprehensive. "We foreigners are not afraid of 70 competitors from China," he said. "We are afraid of the ten champions (remaining) after the consolidation. A few of them, we will see in our home markets in Europe and maybe in America."