China’s wind resources – a new assessment
At the end of 2009, the China Meteorological Administration published a new wind assessment, based on measurements at 50m height. This shows that China has a potential to develop 2,380 GW of class 3 wind power (avg. wind power density >300 W/m©ü) and 1,130 GW for class 4 (average wind power density >400W/m©ü), while the offshore potential (water depth 5-25m) reaches 200 GW for class.
Construction started on Wind Base programmeIn 2008, the newly-established National Energy Administration highlighted wind energy as a priority for diversifying China’s energy mix, which is currently heavily reliant on coal. The bureau selected six locations from the provinces with the best wind resources, and set target for each of them to be reached by 2020:
• Xinjiang Hami (10.8 GW)
• Inner Mongolia (20 GW in Inner Mongolia East and 37 GW in Inner Mongolia West)
• Gansu Jiuquan (12.7 GW; this started its first construction phase in August 2009)• Hebei (14 GW in the Northern part and coastal areas) • Jilin (23 GW)
• Jiangsu (3 GW onshore and 7 GW wind power offshore)
The planning and development for this ‘Wind Base’ programme, which aims to build 127.5 GW of wind capacity in six Chinese provinces, is well underway, and construction has started on some projects. The programme will be key to reaching the Chinese government’s National Mid and Long-Term Development Plan of 3% non-hydro renewable electricity production by 2020.
Offshore wind power developmentIn
April 2009, the National Energy Administration (NEA) asked each coastal province to compile a provincial offshore wind development plan, and divided China’s potential offshore wind sites into three categories, depending on the depth of water: an ‘inter-tidal’ zone for water depth of less than 5 m; an ‘offshore’ zone for water depth of 5-50 m; and a ‘deep sea’ zone deeper than 50 m.
The provincial governments are required to draft offshore development plans for ‘inter-tidal’ and ‘offshore’ wind development up to 2020. Although offshore wind development is still in its infancy in China, the first projects already started construction in 2009.
The Shanghai Donghai Daqiao wind farm project will have a total capacity of 102 MW, consisting of 34x3MW offshore wind turbines manufactured by the Chinese market leader Sinovel.
By the end of 2009, 20 wind turbines had already been installed, three of them connected to the power grid.
The Chinese Renewable Energy Law
The breathtaking growth of the Chinese wind energy industry has been driven primarily by national renewable energy policies. The start of the government’s active engagement in renewable energy development dates back to 2004, when the nation was drafting its first “Renewable Energy Law”. The law was adopted in 2005 and entered into force in 2006.
It gave huge momentum to the development of renewable energy and the wind industry has grown at a frantic pace since then. The Renewable Energy law marks a major shift in energy policy towards market supportive policies for renewables. It stipulates, for the first time, that grid companies have the obligation to purchase the full amount of the electricity produced from renewable sources.
Already in 2005, when the law was passed, the annual growth of the Chinese wind market reached 60%, followed by four consecutive years of over 100% growth. In 2007, the first implementation rules for the Renewable Energy Law emerged, giving further impetus to wind energy development. In addition, the “Medium and Long-term Development Plan for Renewable Energy in China”, released in September 2007, set out the government’s long term commitment to renewable energy up to 2020, putting forward national renewable energy targets, priority sectors, and policies and measures for implementation.
For the first time, the Plan set a target for a mandatory market share (MMS) of electricity from renewable sources. By 2010 and 2020, electricity production from non-hydro sources should account for 1% and 3% of total electricity in the grid. It also requires larger power producers to source 3% of their electricity from non-hydro RES by 2010, and 8% by 2020. The MMS indicates a target of about 18-20GW by 2010 and 80-100GW by 2020 for all non-hydro renewable sources. It is worth noting the 2010 target has been exceeded by wind power alone by a considerable margin.
Renewable Energy Law 2009
AmendmentsAn amendment to China’s Renewable Energy Law was introduced in 2009, reiterating priority grid access for wind farms, a stipulation which had previously not been enforced. In addition, the new amendment requires grid operators to purchase a certain fixed amount of renewable energy, and penalties for non-compliance are foreseen.
The State Council energy department together with the state power regulatory agency and the State Council finance departments will be responsible for determining the proportion of renewable energy in the overall generating capacity, and draw up a detailed implementation plan for requiring grid companies to purchase the full amount of renewable electricity produced.
The amendment also requires grid companies to enhance the power grid’s capability to absorb the full amount of renewable power produced. Grid companies can apply for subsidies from a newly established ‘Renewable Energy Fund’ to cover the extra cost for integrating renewables if necessary.
The Renewable Energy Fund was also introduced by the amendment, and it is designed to serve as the central fund to combine the Renewable Energy Premium and the government funding for renewables. It is not yet clear how this fund will be managed.
The Renewable Energy Premium
The Renewable Energy Law stipulates that the price difference between the electricity from renewable energy and that from coal fired power plants should be shared across the whole electricity system.
To fulfill this objective and to finance the electricity from renewable energy sources, in the implementation regulations of the Renewable Energy Law published in 2006, there is a 0.001RMB/kWh (€0.01 cent) Renewable Energy Premium added to the cost of each kWh of electricity sold, aiming to cover the difference between electricity from coal-fired power plants and electricity from renewable energy.
In 2008, the premium was raised to 0.002RMB/kWh (€0.02 cent) and again in November 2009 to 0.004RMB/kWh (€0.04 cent), to keep up with soaring renewable energy (mainly wind) development.
Also in 2009, the Chinese government introduced a feed-in tariff for wind power, which applies for the entire operational period of a wind farm (20 years). There are four different categories of tariff depending on a region’s wind resources, ranging from 0.51RMB/kWh (€5.4 cents) to 0.61RMB/kWh (€6.5 cents).
This is considerably higher than the tariff paid for coal-fired electricity. Prior to the introduction of the feed-it tariff, a dual track system existed in China, with a concession tendering process on the one hand, the project-by-project “government approval” process on the other. The new feed-in tariff now replaces both these processes.
The level of the new feed-in tariff is comparable to that of the government approved tariffs over the past several years in most regions and is substantially higher than the concession tariff. It gives investors a much clear idea of the long-term framework for the sector.
Is the Chinese wind manufacturing market overheating?
The Chinese government has been very successful in fostering a domestic turbine manufacturing industry through a variety of measures, including a local content requirement, by sharing the burden of the extra costs related to wind power across all the provinces, and by setting a mandatory renewable energy market share for the big utilities.
All these factors have driven the wind market to develop rapidly and to stimulate the wind manufacturing business. By the end of 2009, there were almost 80 wind turbine manufacturers, 30 of which had actually already sold wind turbines.
In January 2009, a change in the VAT rules for wind manufacturing made it even more attractive for local governments to attract wind turbine manufacturing to their province, thereby even further stimulating growth in manufacturing capacity.
The Chinese government has signaled that it is worried about an ‘overheating’ of the wind manufacturing market. Already now, the three largest domestic manufacturers (Sinovel, Goldwind and Dongfang) have a combined production capacity of 8.2 GW for an annual market of 13.8 GW.
Even in a booming market like China’s it seems unlikely that all current Chinese manufacturers will survive this tough competition, and many will be squeezed out of the market. However, the government has taken no concrete measures to counteract this situation to date, and it is important to emphasise that the concerns expressed are not aimed at discouraging wind farm developers, but solely manufacturers.
Abolishment of the 70% local content requirement
The 70% local content requirement was introduced in 2004 when most of wind turbines in the then very small Chinese market were imported. After five years, the domestic wind turbine manufacturing industry is now the world’s largest, and no longer needs such policies.
2009 was a turning point for the domestic industry, in the sense that it has completed its localization and is now gearing up for the international market. Although there were only 17 Chinese made wind turbines exported in 2009 (to the US, India and Thailand), Chinese wind turbine manufacturers appear ready to enter the international market.
Outlook for 2010 and beyondGrid infrastructure continues to be a serious issue in China, and Chinese manufacturers have set themselves the task of improving the quality and reliability of their products, so it is expected that the rate of annual market growth will slow down somewhat, although it is expected that the annual market will continue to grow.
The offshore wind energy market is now starting to take off. Inter-tidal and relatively shallow offshore demonstration projects have been established in a number of coastal provinces. The National Energy Administration will soon begin a concession tendering process to find a reasonable tariff level for offshore wind power.