China to lead global wind energy development?

There is good news in the wind for proponents of wind power. Wind turbine capacity has been increasing and the unit cost of power generated by wind energy is expected to drop further. Much of which is credited to China’s efforts, according to a new report from the Global Intelligence Alliance.

The World Wind Energy Association forecasts that by 2020, wind turbine total installed capacity will reach an estimated 1,500 GW worldwide (ED: caution – this is a higher figure than many other predictions), accounting for 20% of global electricity consumption. This will represent a substantial jump in the role of wind energy in the next decade, where it represented just 1.5% of global electricity consumption in 2008. Though many would see this target as hugely ambitious and perhaps even unrealistic, even a more conservative scenario – such as the Global Wind Energy Council (GWEC)’s Advanced Scenarios – would see almost 1,100 GW of installed capacity by 2020.

Whereas environmental pollution is an issue of concern in China – as well as a bone of contention for the rest of the world trying to agree emissions targets at the COP15 in Copenhagen - it is also China that will play a major role in the global wind energy revolution, ahead of many other countries that have had more time to adopt to wind power but have been sluggish in sorting out problems, the UK being one pertinent example.

“It’s a paradox that in the West, proponents of the green movement protest against the very infrastructure that is needed to drive sustainable energy practices. There is a ‘not in my back yard’ mentality. This paradox is not seen in China - not yet anyway,” says Ms. Kim Khoo, Manager of Intelligence Services at Global Intelligence Alliance (GIA). “In fact, we predict that China will not only become a global leader in wind energy, but may be an important supplier to fast growing emerging Asian economies, such as Vietnam, Thailand and Indonesia, who themselves have limited development in the wind energy technology sector."

The Chinese Government’s firm commitment

With an economy characterised by a slow down in growth rather than actual recession, investment in sustainable energy has continued to grow, by 18% last year to US$15.6 billion, helped by timely policy interventions. In accomplishing this, the Chinese are building up their manufacturing base. This will further benefit from a portion of the country’s large financial stimulus, reported as US$680 billion, with which the country is boosting its domestic markets.

A sign of China’s ambition is that, under its stimulus plan, it has named a new target of 20GW of solar power by 2020, up from 1.8GW installed at present. Helping to meet the taret will be a generous incentive of US$3 per Watt given upfront for solar projects, enough to cover about half the capital cost in most cases.

In-country sources say that China has also raised its wind energy target for 2020, from 100GW previously to 150GW. Already the country has doubled its installed wind power base for four years running and could soon surpass the USA to become the world’s largest wind power market.

Chinese manufacturers such a Goldwind Science and Technology Company (which had its origins in Germany) and Sinovel Wind Energy Company are now producing nearly all the wind turbines being erected in the country, albeit with elements of overseas origin. Goldwind uses turbine blades which, although produced in north-east China, are made at a factory owned by Denmark’s LM Glasfiber.

The Chinese Government regards the development of wind energy as a key priority. At the end of 2008, China overtook India in having the highest installed capacity of wind energy in Asia with a total 12.2GW of total installed capacity versus India’s 9.6GW.

The Chinese wind power equipment manufacturing industry has been attracting investment from many enterprises. With the market capacity of wind power equipment forecasted to reach US$32 billion by 2010, investing in China is important for many foreign enterprises wishing to take advantage of the substantial and rapid build up of wind energy in China.

In addition, overseas turbine companies have made substantial investments in China, in order to comply with an earlier government stipulation requiring at least 70% of components to be sourced domestically for use in Chinese wind energy projects. In order to meet the demands of the growing market, domestic production and technology of wind turbines and components also had to step up.

With this accelerated development of manufacturing, China is gearing up to meet its domestic demands - as well as preparing to supply components to the international market.

Key trends in China’s wind energy industry

Supply shortage for wind turbines and associated components predicted

The demand for wind turbines and related components in many countries is increasing. Together – including predictions including GWEC’s reference, moderate and advanced scenarios - the US, the EU and China are targeting to have installed capacity of approximately 300 and 650 GW by 2020. 

But currently only a number of specialised suppliers are able to produce key parts for higher capacity wind turbines however, and demand may overwhelm some suppliers, especially for those specialising in gearboxes and bearings. In addition, other industries also use similar wind turbine components for their equipment and machinery, and this competition for technology will be problematic.

As an emerging technology, wind turbine designs are still evolving. Parts made are mostly customised and non-interchangeable, making replacement suppliers hard to find. Moreover, the advanced technology required to enter the wind turbine industry is a barrier for new entrants.

Currently, most Chinese wind turbines and components for higher-MW products are licensed or jointly developed with overseas players, whilst local manufacturers still lack the independent capacity to build higher wattage turbines. With fewer players supplying the higher-MW products, there are bottlenecks affecting the supply shortage for wind turbine related equipment, particularly with the Government’s emphasis on higher wattage turbines.

Price volatility for raw materials, notably steel, copper and carbon, is a critical factor in some of the wind turbine parts. Steel is used in towers, gearboxes and rotors; copper used in generators and carbon in rotor blades. Any price volatility can result in bottlenecks in the supply chain.

More partnerships amongst wind turbine industry players

In order for foreign players to ease their market entry and secure consistent supplies and services, partnerships in the form of mutual agreements, joint ventures or acquisitions between market players; such as wind farm developers or operators, wind turbine manufacturers and wind turbine component manufacturers, will continue.

Through such ventures, local players will in turn get to secure proprietary technology.  Examples include Shanghai Electric’s joint effort with German Aerodyn, and Zhejiang Windey’s partnership with Garrad Hassan and Partners Ltd (GH) from the UK.

Local technological advancement

Due to market regulation in China that favours locally made products, foreign players wanting to enter China need to work with local Chinese companies.

This in turn, promotes technology transfer amongst Chinese companies and builds local expertise.

An example of this is Sinovel’s joint program with Austria Windtec. Sinovel is developing a three MW double feedback, variable shift and constant frequency wind turbine system, the first high-tech Chinese offshore wind turbine system, which will be installed in the first offshore wind farm, the Shanghai Donghai Bridge Wind Farm.

China as a major supply chain centre within wind energy industry

If current trends persist, China will become an important global supplier for the wind energy market, especially in key wind turbine components and services.

High local demand, China’s strategic location to supply Asian markets with parts and equipments, coupled with development of local research and development skills may encourage a future role as a global wind energy hotspot for services and equipment.

“China’s increasing ability to manufacture more affordable wind power equipment might even push South East Asia’s wind energy utilization, especially for small to medium scale projects. While the Chinese government is actively promoting the production of turbines with capacities of over two megawatts, Chinese suppliers are still catching up to the technology. For now, their strength will continue to be in small to medium scale wind energy projects, which are a good fit for South East Asia markets,” said Saraswati Diah, an analyst at Global Intelligence Alliance Singapore.

China wind energy suppliers go global

Chinese suppliers’ interest in European companies may be of strategic geographical importance in the long term.

Chinese market leader Goldwin has acquired majority share of German Vensys in order concentrate on the development of its direct drive wind turbine technology. After the acquisition of Vensys, Goldwind also bought the subsidiary companies that produced converters and variable propeller systems for Vensys, through Vensys in Germany.

For Goldwin, this ensures a local foothold in Europe with spin-off benefits both in Germany as well as in China. It has also absorbed a number of cross-border talent with management experience in the domestic and international markets from companies such as Shenzen Huawei, Motorola, General Electric, the bearings industry SKF, Siemens and ABB.

One thing is certain: China has been described as the world’s factory. In wind energy, the global environment would be the benefactor of its manufacturing prowess.

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