the chinese wind energy market

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The Chinese Wind Energy Market

Industry Briefing White Paper

September 2009 Global Intelligence Alliance ©2009. All rights reserved. Contact: Kim Khoo, Manager, Intelligence Services [email protected], Saraswati Diah, Analyst [email protected] Web: www.globalintelligence.com Tel: Singapore (65) 6423 1681

China wind energy industry briefing | September 2009 www.globalintelligence.com

Market overview Market drivers & restraints Key manufacturers Not included here Future trends Not included here About Global Intelligence Alliance Not included here

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Content

This Industry Briefing report provides an overview of the wind energy market in China.The report is provided as is, free of charge and without any warranty or guarantee. Global Intelligence Alliance rejects responsibility for errors or omissions, or for any loss or consequential loss arising as a result of decisions taken based on its contents. ©2009 Global Intelligence Alliance. All rights reserved. This report is copyright, however individual pages or portions thereof may be copied referencing “Global Intelligence Alliance” as the source. Global Intelligence Alliance (GIA) is a strategic market intelligence and advisory group. GIA was formed in 1995 when a team of market intelligence specialists, management consultants, industry analysts and technology experts came together to build a powerful suite of customized solutions ranging from outsourced market monitoring services and software, to strategic analysis and advisory.

Today, we are the preferred partner for organizations seeking to understand, compete and grow in international markets. Our industry expertise and coverage of over 100 countries enables our customers to make better informed decisions worldwide. For further information please see the About Global Intelligence Alliance section at the end of this report, contact the author or visit www.globalintelligence.com

This document contains excerpts from GIA’s “The Chinese Wind Energy Market” Webinar. For the free white paper, please visit www.globalintelligence.com or email [email protected].

China wind energy industry briefing | September 2009 www.globalintelligence.com 3

Abbreviations and acronyms

AMSC American Superconductor A&R Abeking & Rasmussen Rotec BERR-UK (previously DTI-UK) Department for Business, Enterprise & Regulatory Reform – United Kingdom CASC China Aerospace Corporation CHEC China Huadian Engineering Co., Ltd. CHSTE China High Speed Transmission Equipment CWEA China Wind Energy Association CREIA China Renewable Energy Industry Association DEC Dalian Electric DHI Dalian Heavy Industries DTI-UK (now BERR-UK) Department of Trade and Industry – United Kingdom EREC European Renewable Energy Council GE The General Electric Company GW Giga Watt MW Mega Watt R&D Research & Development SAM Stahlturm- & Apparatebau Magdeburg SHFRP Shanghai FRP Research Institute SIAG Schaaf Industrie AG. VAT Value Added Tax WWEA World Wind Energy Association XEMC Xiangtan Electric Manufacturing Corporation YoY Year on Year

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Market overview


Wind energy installations worldwide is expected to grow, with government policy being a key driver

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Market overview

Source: World Wind Energy Association, 2008

Worldwide wind turbine total installed capacity forecast (MW) •  With increasing wind turbine capacity, the unit cost of power generated by wind energy is expected to decrease¹.

•  WWEA forecasts that by 2020, wind turbine total installed capacity will reach an estimate 1,500,000MW worldwide accounting for 20% of global electricity consumption. At the end of 2008, wind energy accounted for 1.5% of global electricity consumption.

¹ Unit cost for wind energy is dependent on many factors besides turbine capacity. There are many variables that may influence the unit cost of wind energy, for example the site of the wind farm, operation and maintenance costs over the life of the facility, backup unit or units of generation costs, extra costs imposed on transmission and grid management cost may also vary widely depending on the control area involved, the output and variability of output from the generator, load on the grid, etc.


At the end of 2008, China overtook India with the highest total installed capacity of wind energy in Asia

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Market overview

Top ten countries with the highest total installed capacity of wind energy worldwide (GW) and total installed capacity YoY growth between 2007-2008 (%)

Note: The installed capacity is rounded to the nearest decimal place; growth YoY is generated from the original installed capacity, rounded to the nearest whole number. Source: World Wind Energy Association, 2008


China’s total capacity is expected to increase rapidly with more units of higher capacity turbines installed

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Market overview

China installed capacity (GW) and YoY growth (%)

Note: The installed capacity are rounded to the nearest tenth; the YoY are generated from the original installed capacity, rounded to the nearest whole number. Source: China Wind Energy Association, 2009, China Renewable Energy Industry Association 2009, GIA estimates 2009

Breakdown of installed capacity

(GW) and YoY growth (%)

127% 107%

23% 33%

60%

60%

Total installed capacity (GW) and

YoY growth (%)

293%309%308% 78%

146%198%161% 55%

12% 35%

28%

14%

297%

34%

24%

10%

433%

17%

9%

4% 4%

7%

14%

140%

Affected by global economic downturn

Produced by wind turbines of the following capacities:


Market overview

Note: For reference only; this is not an exhaustive list.

China wind energy activities

Global players have seized opportunities in China, rapid advancement also made by local companies

Jan 2009 Construction of an industrial park for wind power equipment production is to start in Jilin Province with capital from Sany Group and Tongyu Asset Management.

Jan 2009 American Superconductor (AMSC) receives an order for wind turbine core electrical components from China's CSR Zhuzhou Electric Locomotive Research Institute, that will be used for wind turbines designed by AMSC's subsidiary.

Feb 2009 China Wind Systems starts gearbox production in Wuxi. Supply agreements signed with Wuxi Lida Gear Manufacturing, Gansu Keyao Electrical Power and Hangzhou Advanced Gearbox.

Feb 2009 GE plans to increase wind turbine deliveries to Chinese customers from 159 units in 2008 to 320 units by 2009, and 600 units by 2010.

Mar 2009 CLP Group announces it will acquire 50% equity interest in a wholly owned subsidiary of China Wind Power Group Ltd for HK$101.3 million.

Mar 2009 GE Drivetrain Technologies signs an agreement with A-Power to supply gearboxes and to establish a JV partnership for gearbox manufacturing.

Mar 2009 Suzlon Energy signed an agreement to supply wind turbines to Inner Mongolia North Longyuan Wind Power Corporation.

Mar 2009 Hansen Transmission delivers its first gearbox from its new facility at the Beichen Hi-tech Industrial Park, Tianjin. The gearbox will be deployed in 2.1MW Suzlon turbine.

Mar 2009 Sinovel installs a 3MW wind turbine in the Shanghai East Sea Bridge’s 100MW offshore wind farm – the Chinese first pilot offshore wind project.

Apr 2009 Vestas introduces the new V60-850kW wind turbine. Manufactured in Vestas’ new facility in Inner Mongolia, over 90% of its components are Chinese made. The turbine design includes innovation in blade design and temperature control system which addresses Inner Mongolia’s harsh climate.


Market overview

Note: For reference only; this is not an exhaustive list.

China wind energy activities

Repeat orders, second orders or an increase in current contract sizes seen amongst the existing players

Jul 2009 Suzlon China receives repeat orders of 40 units of 1.25MW wind turbines from Honiton Energy Group, who has secured development in Inner Mongolia.

Jul 2009 Gamesa and Huadian have reached an agreement for the supply of wind turbines totaling capacity of 300MW. It includes 200MW to be installed at a jointly developed wind farm in Inner Mongolia, and 100MW for another Huadian project.

Jul 2009 Suzlon China receives repeat orders of 39 units of 1.25MW wind turbines from Datang Power Generation.

Jul 2009 Vestas has received an order for 17 units of 2.0MW wind turbines from China Fujian Wind Energy Company. The contract includes supply and commissioning of the wind turbines, a VestasOnline® Business SCADA system and a two year service and maintenance agreement.

Aug 2009 AMSC has amended its contract with Sinovel, to increase its core electrical components to meet Sinovel’s demand.

Aug 2009 AMSC has received the 2nd order for its D-VAR system for a Chinese smart grid from China National Machinery Industry Complete Engineering.

Aug 2009 Construction has started at China’s first 10million kW wind power station in Gansu province. With 120 billion Yuan investment, the station was designed to have an installed capacity of 5.16million kW by the end of 2010 and 12.71 million kW by the end of 2015. It will be China’s largest wind power facility upon completion.

May 2009 Siemens is building a new rotor blade and nacelle plant in Shanghai. The new facility is scheduled to take up operation in the second half of 2010, initially with 400 employees. The wind turbine plants produced in Shanghai will be for the Chinese market and for export.

Siemens is investing more than EUR60 million in setting up this new location.


Market drivers and restraints



Source: GIA 2009

Chinese government firm commitment towards wind

energy Chinese abundant resources

Relative immaturity of China’s wind energy market

Global economic downturn Chinese under-developed

infrastructure in some areas

DR

IVER

S R

ESTR

AIN

TS

“Buy Chinese Policy” hinders

growth

Chinese low labour costs

Component supply shortage

China wind energy market drivers and restraints

Improvement in Chinese component manufacturing

technology

China has a unique position combining low labour costs, abundant wind resources and favourable policies



Government regulations on renewable energy targets and subsidies drive Chinese wind energy growth

Low labour costs •  China’s comparatively lower labour cost compared to North America and Europe’s, offers opportunities for

cheaper manufacturing cost.

•  China’s minimum wages are set locally according standards laid out by the central government. For example in April 2008, monthly minimum wages in the Tianjin municipality was 820 RMB, whilst the hourly minimum for non-full-time workers was 7.8 RMB.

Chinese abundant resources •  China has untapped wind resources. Exploitable wind resources are estimated to represent a potential power

generation capacity at ten metres above the ground of 253GW, whilst ocean-based wind resources represents an exploitable potential of about 750GW.

Chinese government firm commitment towards wind energy

Improvement in Chinese component manufacturing technology •  Partnerships or acquisitions between Chinese players and their foreign counterparts speed up technology transfer,

e.g. Goldwind acquired Vensys to facilitate concentration on the development of direct drive wind turbines.


Relative immaturity of Chinese wind energy market •  As a relatively new industry in China, there is a shortage of skilled human resources particularly for the

higher-wattage wind turbines.

Component supply shortage •  High demand of wind turbines especially in 2007-2008 caused a supply shortage of wind turbine parts,

particularly for gearboxes and bearings, which was a market restraint in China.

Chinese under-developed infrastructure in some areas •  Some areas, notably in the Northern part of China where abundant wind resources are available,

infrastructure is not yet fully developed, hindering the development of full facilities.

•  A lack of existing infrastructure also means a lack of grid availability and problems on grid connections.

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Protectionist policies towards Chinese made components in tenders is a market restraint

“Buy Chinese Policy” hinders growth •  As Chinese government regulation rules that at least 70% of wind turbine components in China must be locally

made, foreign players face further difficulties to grow in the Chinese market unless they set up manufacturing facilities.

•  In addition, a recently released edict states that “government investment projects should buy domestically made products unless (they) cannot be obtained in reasonable commercial conditions in China.



Chinese government major regulations on wind energy

Regulation on renewable energy target and subsidies drive Chinese wind energy growth

Note: For reference only; this is not a complete list of energy regulations.

•  Notice on Wind Power Generation Facility Construction and Management Requirement – July 2005 Specifying the domestic content of 70% or more as one of standards for approval of wind power generation plants and

subjecting imported facilities to tariffs.

•  Renewable Energy Industry Development Instruction List – November 2005 List of 88 projects (23 of them for wind power) for utilization of renewable energy and types of relevant equipment in a

bid to promote relevant government at laboratories and enterprises, and instructions on investment and constructions.

•  Renewable Energy Law – implemented since January 2006. The law prioritized energy policy in terms of its development. This included the utilization of renewable energy and

required power utilities to purchase electricity generated with renewable energy.

•  Administrative Provisions for Renewable Energy Power Generation – implemented since January 2006 The provisions specify the standards for administration of renewable energy power generation and the roles of power

generation and grid enterprise in the development and utilisation of renewable energy.

•  Provisional Administrative Measures on Pricing and Cost Sharing for Renewable Energy Power Generation – implemented since January 2006.

The provision provides guidance on how to calculate prices and share costs for renewable energy power generation as approved by the government in and after January 2006




Policies and regulations built to increase renewable energy’s share of total energy consumption in China

•  Tentative Management Method for Renewable Energy Development Special Fund – implemented since May 2006 The guide offers additional measures to enhance support for renewable energy development. It allows the central

government to provide financial assistance for the development of renewable energy for oil substitution and construction areas; and of wind power, solar and other renewable energy sources for power generation.

• Medium to Long-term Renewable Energy Development Plan – August 2007 Aims to increase renewable energy’s share of total energy consumption.

• Management Method for Power Grid Enterprises’ Purchasing of Renewable Energy Electricity – implemented since September 2007.

The method provides the regulatory commission’s supervision and management duties, measures and legal responsibilities regarding power grid enterprises’ purchasing of renewable energy electricity.

•  Energy-Saving Power Generation and Power Dispatch Method (pilot program) – Aug 2007 Gives priority to renewable energy power generations, sets a priority order for power generation methods in accordance

with energy consumption and pollutant emissions. This also places power dispatch priority on methods in the order of lower energy consumption and pollutant emission.




In 2009, the Chinese government revised its 2020 target for wind power generation from 30 GW to 100GW

•  11th Five-Year Renewable Energy Development Plan – March 2008 The plan though is basically in line with the medium to long-term plan, remarkably revised the wind power generation

goal for 2010 onward from 5 GW in the medium to long-term plan to 10GW, and specified sites for and sizes of, wind power plants for development and other relevant numerical goals. Also, it calls for achieving domestic production of 1,500kW or larger onshore generation units and 3,000kW offshore units by 2010.

•  Notice on Adjustment Regarding Import Tariffs for Large-Output Wind Power Generation Units, Their Main Components and Raw Materials – implemented from January 2008

To refund import tariffs and phase out import value-added-taxes for main components and raw materials for Chinese firms’ development and production of larger-output (1,200kW or more) wind power generation units and repeal tax incentives for purchases of certain wind power generation units.

•  Note released by Chinese Finance Ministry, Sept 2008 Chinese wind turbine makers can get a payout of 600 yuan ($87.79) per kilowatt for the first 50 units they produce of any

new turbine with capacity of 1 megawatt or more. The subsidy should be shared equally between manufacturers of key parts and the companies that assemble the finished product.

•  Note release by National Development and Reform Commission, May 2009 The National Development and Reform Commission revised the wind power generation goal for 2020 from 30GW to

100GW.



These slides are excerpts from the GIA White Paper: “The Chinese Wind Energy Market”.

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