Will Chinese turbine manufacturers’ presence on the world market be a catalyst that drives wind energy to grid parity?

By Paul French in Shanghai

Back in 2004, some seventy-five percent of turbines sold in China were foreign brands, with the Spanish firm, Gamesa, dominating China’s foreign turbine market in 2007.

More recently, however, foreign manufacturers have found it increasingly difficult to compete in China, following the introduction of a rule that mandates manufacturers to use at least 70 percent of Chinese components in their turbines.

In addition to curbing the sale of foreign turbine components in China, the central government has been actively supporting local companies via a concession-bidding process, which guarantees large orders.

Other support measures include financial assistance to develop new turbines and technology transfer.

China's goal, which is to ensure not only technology and job transfer to China, but also to guarantee that at least a handful of Chinese companies emerge as global leaders, is within reach.

Chinese companies now dominate the domestic market and are already establishing overseas offices.

There are now over 70 wind-turbine manufacturers in China either producing, or planning to produce, 1MW+ turbines. This translates to around 10GW of planned annual production capacity by 2010, rising to over 12GW by 2012.

Foreign manufacturers down but not out

Although Chinese companies have a significant market share owing to domestic support for local manufacturers, European players are also still present in the Mainland market.

In terms of market share – according to a recent study from CLSA Emerging Market, an investment bank in Hong Kong - the market leader, China’s Goldwind, has approximately 23 percent, Sinovel 19 percent, Gamesa 15 percent, while Denmark’s Vestas holds 12 percent.

Among the smaller players, America’s GE has 7 percent of the market, while Spain’s Acciona, China’s Dong Fang and India’s Suzlon each have a 6 percent market share.

Several foreign turbine manufacturers have also recently taken advantage of China’s more liberal Wholly Foreign Owned Enterprise laws, which allow them to avoid partnerships with local firms and to expand wholly owned facilities in the PRC. The advantage of which, is that manufacturers have greater control over their investment and need not run the risk of disputes with Chinese partners.

In October 2009, Vestas opened the world’s largest integrated wind power production base – a 230,000 square metres facility in the northern Chinese city of Tianjin, costing RMB2.5mn.

The plant incorporates the production of turbine engine rooms, blades, gears, generators, control systems and mechanical parts.

Siemens, among the largest single corporate investors in China in a wide range of other sectors, is also opening a new wind turbine production facility in Shanghai Lingang New City at a cost of RMB573bn.

Buying, not borrowing

Originally, licensing agreements with either American or European firms were popular.

Of the 70 or so wind-turbine manufacturers operating in China, nearly 40 percent of them are listed as ‘foreign invested firms.’ This implies a degree of overseas involvement, usually via a technology transfer.

Denmark’s Vestas has engaged in a partnership with China Datang Renewable Power Co., Ltd manufacturing Vestas’s V60-850 kW turbines, designed specifically for the Inner Mongolian market which is subject to the extremely dry and harsh wind and weather conditions of northern China.

But recently, a number of Chinese companies have grown large enough, and rich enough, to start acquiring.

Xinjiang-based Goldwind’s acquisition of Germany’s Vensys Energy in 2008 added 2.4MW turbines to its existing product line of 600KW, 750KW and 1.5MW turbines. The acquisition placed Goldwind at the lead of turbine technology development.

Other Chinese companies have begun developing new technology in-house rather than through licensing agreements.

Sinovel, now the world’s seventh largest wind turbine manufacturer, first introduced 3MW-class wind turbines but is now developing its own 5MW turbines targeted at the international market.

Small fish in a big pond?

Chinese manufacturers may have the lion’s share of the home market, but just how competitive are they beyond the border?

Charles Yonts, CLSA’s Head of Clean and Green Research, believes it is only a matter of time until Chinese players become major global forces with improved technology and attractive pricing to suit a cash-strapped western market with a high demand for renewable energy.

But he cautions: “Chinese turbines are cheaper, but quality concerns still linger.”

China has already begun exporting wind turbines, primarily by via foreign wind-energy companies that established manufacturing bases in China to widen their margins.

The next anticipated trend is for the big Chinese players to go international. Cielo Wind Power’s October 2009 joint venture agreement with Shenyang Power to construct a 600MW wind farm in Texas indicates that such a trend may already be underway.

Analysts at the state-run Chinese Wind Energy Association (CWEA) expect more or these type of JVs to follow.

The CWEA anticipates that the increasing number of JVs will be spurred by the credit crunch in Europe and America, making Chinese turbines more affordable and perhaps more importantly, Chinese financing more attractive – and accessible.

As Yonts points out: “China’s emergence as a wind-turbine manufacturing power house will have a similar effect as it has had on other industries - prices should drop globally. This will benefit project owners worldwide and boost the industry’s long-term returns.”

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Paul French: pfrench66@googlemail.com

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Rikki Stancich at rstancich@gmail.com