2010 Review of the Chinese Market




2010 continued to be a good year

2010 was another good year for wind power development in China. With an annual installed capacity of nearly 19GW, the country secured its position as the world’s leading wind player. In 2010, China alone contributed to nearly half of the global new wind installed capacity. As the market in the United States was affected by both the global financial crisis and the shale gas boom, China has truly become the driving force of the global wind market.

The Wind Base program is still the main area for the onshore development. The top three provinces in terms of annual installed capacity, Inner Mongolia(4661MW), Gansu(3756MW) and Hebei (2133MW), all have wind base programs. The province of Shandong, will become the eighth . wind base project, with 10GWs. This follows Gansu, Inner Mongolia, Hebei, Jilin, Xinjiang and Jiangsu provinces which all have ongoing wind base projects. By 2020, all the wind bases are supposed to provide over 138GW of capacity.

Offshore development was kicked off in China with the 100MW Shanghai Donghai Daqiao project, and the first offshore concession tender took place in 2010. The tender hosted four projects totaling 1000MW.

In the meantime, Chinese manufacturers continue to take their place amongst the world’s leading manufactuers. Sinovel, Goldwind and Dongfang Electric have moved up the global top 10 list and United Power joined the list at number 10 this year.

Despite all the strengths of both the onshore and offshore development industry experts have started to feel some cold air that signifies some dramatic changes in the coming years.

Grid constraints and turbine reliability—twin challenges for the industry’s healthy development

Grid issues have never been easy for the Chinese wind sector. The resource-rich areas are in the north and west, while the load centers are located in the eastern coastal area. The mismatch of the generation sites and the load centers creates a huge challenge for transmission. The situation deteriorates when the northern and western wind bases integrate high volumes of wind into the system. The situation is most serious in Inner Mongolia, where the grid is independent and the inter-tie connection to the eastern Huabei area is weak.

Another factor that contributes to the thorny grid challenge is the fact that China’s grid companies are not used to the dispatching and balancing challenges raised by the wind power’s variability. The absence of a power market makes it difficult to give real incentives to balance the interests of the different sources of generation.

The wind forecast system, still undeveloped, adds more uncertainties to the balancing task. Lack of flexibility in the power grid is significantly hinders wind development and curtailment is a common practice. For Longyuan, in the period from January-April 2011, grid curtailment reached 16% of total electricity produced from wind, and 40% in the Inner Mongolia area.

In the mean time, the grid companies, which are mainly state owned monopolies, put all responsibility on to the wind farms and turbine manufacturers, making reliability of the turbine the target of any dispute. In February and again in April 2011, at the Gansu Jiuquan wind base project, several incidents intensified the discussion. . The incidents were all caused by a cable which short circuited and then lead to hundreds of wind turbines triping off the grid. The grid companies blamed the turbines for not having LVRT functions, while the manufacturers claimed different problems. It is true that some machines in the area do not have LVRT(most of the machines claim to have the function built in, but it was not being utilized yet). The real reason for the massive wind turbine trip off the grid in early 2011 was the SVC[2] function at the substation that created a ultra-high voltage after the drop of the voltage.

These incidents were the most serious in recent years. It lead to discussions of both the quality of the turbine and the management of wind farms, as all incidents were triggered by cable short circuiting, which some people claim is the result of fast construction without concern for safety and quality control. The incidents lead to serious interferences from the central government, which called for a suspension of construction of on-going projects and issuance of a rule to test the LVRT function for all turbines.

The incidences at the Gansu Jiuquan wind base project brought other issues to the fore.. It introduced the discussion on the speed of wind farm construction, which led to some serious criticism of the great-leap-forward kind of development in the wind sector. On the other hand, it exposed the various technical problems that the wind base projects are presenting , which will take time to review and reflect upon. For example, with the massive wind base projects in such high concentration, which grid technology design is best? The rapid development of wind in China has is currently being questioned and challenged for the first time

Seizing the new wind—the low speed zone

Against the background of grid constraints, the government has turned its attention to new areas where they can seize the wind and feed it into the grid more easily. Low speed zones are one of these new areas, along with offshore wind. However, the new focus on low speed zones and offshore doesn’t mean that the government is moving away from the wind base idea. The existing wind base projects will continue to be the backbone of China’s wind development through 2020.

Low speed zones, located in China’s southern and eastern areas, are close to load centers. The development of wind energy in low speed zones is being written into the draft twelfth-five-year plan for renewable energy. Named ‘ distributed wind energy projects’, these projects will not be as large as the wind base projects. Manufacturers are also moving towards turbines with long rotor blade to better seize the wind in the low speed areas.

Offshore Development—great potential, but challenges remain

Offshore wind development has also gained a lot of attention in the past two years. The twelfth-five-year plan for energy and renewable energy, currently being drafted has a tentative offshore wind development target of 5GW by 2015 and 30GW by 2020.

There are several small scale inter-tidal projects in China. These near-shore projects, also called as inter-tidal projects, are installed in shallow waters less than 5 meters deep. Inter-tidal projects are a unique type of offshore project which so far only exist in China. Installed inter-tidal projects include: the 30MWRudong inter -tidal, the 6MW Jiangsu Xiangshui project and the 6MW Shandong Rongcheng project. The 30MW Rudong intertidal near shore project is a demonstration project hosted by Longyuan, China’s largest wind farm developer. The project is a testing project, utilizing nine models of offshore wind turbines from eight (mostly domestic) manufactures.

In the beginning of 2010, the National Energy Administration (NEA) and the State Oceanic Administration (SOA) jointly issued the Offshore project development interim management rules. It stipulates that new offshore projects will follow concession tenders to determine the project developer and tariff.

In May 2010, the first round of concession tendering took place, with four projects totaling 100MW, all located in Jiangsu province. Two of the projects are inter-tidal projects, the other two are offshore. The tariffs of the projects range from 0.624RMB/kWh($8.9cents) to 0.737RMB/kWh($10.5cents). These tariffs are quite low, comparable to that of the onshore tariff, which is between 0.51 and0.64RMB/kWh. The winners of these projects are all domestic state owned utilities, as the rule stipulates that only Chinese companies (at least 51% of the shares are Chinese owned)can participate in the bidding. The turbine suppliers are Sinovel(3MW), Goldwind(2.5MW) and Shanghai Electric(3.6MW). The second round of offshore concession tender is planned to take place in the second half of 2011, totaling 200MW.

However, China’s new offshore development is not without challenges. The most shocking news was that the four sites chosen for last year’s offshore concession were forced to change location after the completion of the tender. , due to conflicts with other marine economic activities. This situation raised concerns in offshore planning. In July 2011, a new policy was issued by the NEA and SOA, entitled: Detailed rules for offshore project development. It stipulated that the offshore projects should be at least 10Km from the shore and in water no less than 10meters deep. This new rule aims to avoiding conflict of interests with other marine business such as fishing and aquaculture. However, the new rule will limit the development of inter-tidal projects, which are taking place in mainly Jiangsu and Shangdong province.

Low tariffs are also a concern in China’s new offshore development.. The low tariff reminds people of the first round of onshore concession projects in 2003, where the wind tariff from the tender once reached 0.32RMB/kWh.

The Chinese government introduced the tender for two reasons: to drive offshore development by introducing large scale projects; and to use the competition to squeeze the profit of the developers and drive the tariff to a reasonable price. However, the second purpose is always misused and leads to vicious competition on tariffs. The short history of Chinese onshore wind concession tendering has taught us that without specific adjustments to the tender rules, the economic nonviable tariffs from the tender won’t benefit the industry in the long run.

Fierce competition in manufacturing

Wind turbine prices in China are at a record low, reaching 3500RMB/kW during the recent wind base equipment tender. This cutt-throat price is hard for everyone to swallow. , and the competition makes it even harder for the smaller manufacturers to survive. The consolidation and shuffling amongst the Chinese manufacturers has been pending for several years, and it seems that now the time has come for some real changes.

For the first time, 2011 has seen difficulty in project finance, which has never been a problem in the past for the SOE utility companies in this booming sector. But this year, due to the contracting monetary policy, the commercial banks were reticent to give loans. Investment decisions in Chinese bank are guided heavily by the government policy, andthis year, when wind development is facing various challenges and the government is slowing down development for better planning and review, the banks take this as a negative signal and thus become tight on wind projects.

Outlook

China’s wind development has amazed even the most optimistic observers in the past four years. However, this high-speed development is not without negative impacts. The Chinese industry needs to slow down a bit to reflect on both the experiences and lessons, and this is now happening.. But this doesn’t mean the wind sector is going to stagnate. On the contrary, it is still the most important sector in China’s stride towards clean energy development, vital for both energy security and the climate change.




[1] Published by Wind Power Monthly, China Special Report, October 2011.

[2] SVC(Static VAR Compensator) is an electrical device for providing fast-acting reactive power on high-voltage electricity transmission networks.