China To Lead Global Wind Energy Development

There is good news in the wind for environmentalists. Wind turbine capacity has been increasing and the unit cost of power generated by wind energy is expected to drop, much of which is credited to China’s efforts.

The World Wind Energy Association forecasts that by 2020, wind turbine total installed capacity will reach an estimated 1.5 million megawatts worldwide, 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.

Where news of environmental pollution is an issue of concern in China, it is also China that is set to take the lead in the global wind energy revolution, ahead of the United Kingdom or the United States, who have long been its strongest advocates.

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. 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

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 the investment from many enterprises. With market capacity of wind power equipment forecasted to reach 32 billion US dollars 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 percent 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 both the domestic demands as well as preparing to supply components to the international market.

Key trends in China’s wind energy industry

1. Supply shortage for wind turbines and associated components predicted

The demand for wind turbines and related components in many countries is increasing. Together, the United States, the European Union and China are targeting to have installed capacity of about 400 to 500 gigawatts by 2020.

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.

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-megawatt 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-megawatt 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.

2. 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 United Kingdom.

3. 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 megawatt 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.

4. 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.

5. 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.

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

About the authors

Kim Khoo is Manager of Intelligence Services at Global Intelligence Alliance (GIA), while Saraswati Diah is an analyst at Global Intelligence Alliance, Singapore.

About Global Intelligence Alliance

Global Intelligence Alliance (GIA) www.globalintelligence.com  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.

About the article

This article is based on extracts from Global Intelligence Alliance’s white paper entitled: The Chinese Wind Energy Market. The white paper can be downloaded at www.globalintelligence.com/insights-analysis/white-papers/