Notably, 2009 also saw Chinese wind turbine manufacturers take a quarter share of the global market, confirming the solidity of the homegrown industry.
China’s expansion in the wind turbines industry is worth viewing against the background of this growing economy’s broader electric power sector, where heavy investments are also being made in new coal, gas, hydro and nuclear generation.
China’s total power generating capacity grew by some 11% in 2008 (2009 figure not yet available), while wind power more than doubled in that year. In 2009 alone, more wind power was added to the Chinese power grid than the total amount of operating nuclear power stations (13.8 vs 9 GW). However, despite this tremendous growth, wind power still only covers less than 1% of China’s total electricity demand.
The growth experienced by China’s wind farm industry over the past five years has been driven mainly by national renewable energy policies, as well as very active participation in the UNFCCC’s Clean Development Mechanism.
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. This law, which was passed in 2005 and entered into force in 2006, marked a shift in energy policy by requiring grid companies to purchase all the electricity that is produced from renewable sources.
The wind farm industry has grown rapidly since its introduction: the market grew by 60% in the year the law was passed, followed by four consecutive years of more than 100% growth (2006-2009).
The Chinese government clarified its long-term commitment to renewable energy through its ‘Medium and Long-term Development Plan for Renewable Energy in China’, released in September 2007. 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 renewable sources should account for 1% and 3% of total electricity in the grid (indicating a target of about 18-20 GW of installed capacity by 2010 and 80-100 GW by 2020).
The plan also requires larger power producers to generate 3% of their electricity from non hydro renewable energy sources by 2010, and 8% by 2020. In 2008 the government identified six locations in provinces with the country’s best wind resources, and set each of them a target – ranging between 10 GW and 23 GW – to reach by 2020.
Economics of wind energy development
Until the introduction of new feed-in tariffs for wind power in 2009, China had a dual track system for wind farm projects, with a concession tendering process on the one hand, and the project by-project ‘government approval’ process on the other.
The 2009 feed-in tariff now replaces both these processes, except for the ‘wind-base’ projects and the new offshore development. Now, there are four different categories of tariff depending on a region’s wind resources, ranging from 0.51 RMB/kWh to 0.61 R MB/kWh1.
Not only is the feed-in tariff comparable to that of the government approved tariffs over the past several years in most regions; and substantially higher than most tariffs granted under the old concession system; it is set considerably higher than the tariff paid for coal-fired electricity, which helps rebalance the attractiveness of investments in these two technologies.
Further, the feed-in tariff applies for the whole operational period of a wind farm – providing investors with a much clearer long-term perspective.
Wind Turbine manufacturing
Two ways China has addressed the economics of wind power plants are economy of scale, by developing large-scale wind farm projects, and local manufacture of wind turbines and other equipment.
In the past, wind turbines manufactured by international players dominated the market, but this changed rapidly as the growing market and clear policy direction have encouraged the establishment of domestic players.
2009 was something of a turning point for the rapidly growing domestic industry, in the sense that it has completed its localization and is now gearing up for the international market.
Yet it seems unlikely that all manufacturers can survive in this toughly competitive market. By the end of 2009, China had almost 80 wind turbine manufacturing businesses, about 30 of which had already sold their products into the market.
However, in spite of these numbers, three top Chinese manufacturers currently dominate the wind energy sector in China. Goldwind, Sinovel and Dongfang all earned a place in the world’s top ten manufacturers in 2009, and United Power and Mingyang made the top 15.
Yet, unless the export market for Chinese wind equipment increases considerably or the home market expands further than predicted, there will be little room for the remaining 60 Chinese manufacturers alongside the established Chinese players and the international companies that manufacture in China.
Chinese turbine manufacturers are also readying themselves to enter the international market, albeit from modest beginnings. Only 21 Chinese-made wind turbines were exported in 2009 (to the US, India and Thailand), according to the Chinese Wind Energy Association (CWEA).
It is by no means uncommon for a growing wind sector to run up against the constraints of a limited power transmission system. In China, which is experiencing rapid economic growth and an unprecedented expansion of its power sector, the grid infrastructure is proving to be a serious issue, especially in areas with high wind speeds, such as the Northwest, the North and the Northeast of China. This problem has both institutional and technological aspects.
Politically, the low official target for wind power development in China (30 GW by 2020, a figure that should in reality already have been reached in mid-2010) provides a welcome excuse for delays in infrastructure upgrades.
The lack of suitable power grids in turn discourages grid operators from accepting more wind power into the grid. While under the existing legislation, grid companies are obliged to buy power generated from renewable sources, there are no penalties for non-compliance with this provision, and no compensation is paid to wind farm operators for the losses they incur when failing to sell their power.
Although this issue was addressed by the 2009 amendments to the Renewable Energy Support law, it is not yet clear if it will be effective. Overall, however, there is no doubt that given the need for fuelling the country’s growing economy, more power grids will be built in China.
One indication is the priority that the Chinese government has given to infrastructure projects in its 2008 economic recovery plan. The current power sector plans require the capacity of each of the west–east transmission connections to increase from about 7 GW (2005) to 40 GW by 20202; and as many of China’s prime wind sites are far to the west and north of main centres of population, exploiting them fully will require the construction of much new dedicated transmission.
Offshore wind energy in China
Summer 2010 saw reports that China’s first offshore wind farm – the 102 MW Donghai Daqiao installation near Shanghai’s East Sea Bridge – has started feeding power into the transmission grid following completion of construction in February. 34 Sinovel 3 MW turbines make up the first phase of the wind farm.
Construction also began this year on what will eventually be 1,000 MW of offshore wind off Shandong Province. In April 2009, the National Energy Administration (NEA) asked each of China’s coastal provinces to compile a provincial offshore wind development plan, and divided the potential offshore wind farm 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.
The GWEO scenarios For China
In our previous Outlook, published in 2008, the 2020 projections for total installed capacity in China were 27 GW under the Reference scenario, 101 GW under the Moderate growth scenario, and 201 GW under the Advanced growth scenario.
Projections for capacity additions in 2010 were 9 GW (Reference), 17.5 GW (Moderate) and 19.6 GW (Advanced). However – by the end of 2009 China’s total installed capacity had already reached 25.8 GW. If 2010 sees the same level of new build as 2009, with no annual market growth at all, China will have close to 40 GW of wind power installed by the end of this year.
With these developments in mind, the scenarios presented in this report have been updated radically, while the IEA’s Reference scenario remains rather pessimistic.
According to the IEA, the Chinese wind energy market will experience a considerable decrease in annual installations from 13.8 GW of new capacity added in 2009 to a mere 2.5 GW in 2015 and 2030. This would translate into a total installed capacity of 70 GW by 2020, which is significantly lower than the unofficial Chinese target of 150 GW by this time.
This slump in the annual market would have a dramatic effect on investment and jobs in China, with investment figures dropping from the current €18.6 billion per year to a mere 3.2 billion by 2015, and employment plummeting from an estimated 150,000-200,000 jobs to only 50,000 in this timeframe.
Such development, as foreseen by the IEA, would not help China’s effort to curb its carbon emissions, as wind power would then save only 103 million tons of CO2 annually by 2020, and 140 million tons by 2030.
Given the Chinese government’s commitment to developing the countries wind resources, the GWEO Moderate scenario foresees a more realistic continuation of wind power growth in China, with annual installations increasing from the current 13.8 GW to 17.7 GW by 2020 and 22.1 GW by 2030. By 2015, the total installed capacity would increase to reach 115 GW, and this would grow to 200 GW by 2020 and 400 GW by 2030.
As a result, €21.3 billion would be invested in Chinese wind farm development every year by 2020, and 24.6 billion in 2030. Employment in the sector would grow from the currently estimated 200,000 jobs to reach close to 300,000 by 2020 and 400,000 by 2030.
But the GWEO shows that the wind development in China could go even further. The most ambitious Advanced scenario is looking at 135 GW of total installed capacity by 2015 and 250 GW by 2020. This would grow to reach 513 GW by 2030, with annual markets growing to 25.5 GW over that period.
This kind of very large scale deployment of wind energy would have significant economic and environmental benefits for the world’s most populated country.
By generating 330 TWh of clean electricity in 2015, wind power would start to make up a considerable share of China’s overall power demand, and this would grow to 614 TWh by 2020 and as much as 1,258 TWh by 2030.
This would represent around 11% of China’s total electricity consumption in 2020, and 18% by 2030, based on the IEA’s assumptions for the country’s power consumption growth, and it would help fuel the country’s growing economy and provide a hedge against volatile fossil fuel prices.
Such development would also result in more than €25 billion of investment flowing into the Chinese wind energy sector every year by 2030, which would go along with a doubling of the wind sector work force from the current 200,000 to reach close to 400,000 in this timeframe.
And, last but not least, exploiting the country’s wind resources to this level would significantly improve China’s carbon emissions balance. By 2015, wind power would help save 190 million tons of CO2 every year, and this figure would grow to 750 million tons by 2030.
However, in order for China to fully exploit the economic and environmental benefits that wind power can offer, certain remaining obstacles need to be addressed. This concerns the issue of grid infrastructure to accommodate ever larger amounts of wind power in the national electricity grid and transport them from the windy but remote areas to population and industry centres.
A different, yet related issue concerns the government target for wind power development. Although the current official target of 30 GW by 2020 has already been met, the target has not been increased yet. Ambitious targets, however, are key to demonstrating political commitment to wind power development, and to encouraging investment, both in manufacturing and in grids.